Sam Bankman-Fried, FTX and the future of crypto regulation


Right now, we have far more questions than answers about what happened with FTX, the cryptocurrency exchange that went bust last week. Will account holders get their money back? Will Sam Bankman Fried, aka SBF, face criminal charges? What will happen to everyone who accepted his donations? Is it finally The beginning of the end for cryptocurrency?

Then there’s the question right before us: How did this happen, and how do we make sure it doesn’t happen again? The answer to this question is complicated since many preliminary investigations into Bankman-Fried, Alameda Research, and FTX have only just begun. However, what has already come out has reinvigorated calls to regulate an industry that has long commercialized its lack of regulation as one of its main features.

These calls are now getting louder, and everyone seems to agree that something needs to be done about cryptocurrency regulation. But there doesn’t seem to be any consensus on what this thing should be. FTX, meanwhile, has it already filed for bankruptcyalthough liquidators in the Bahamas said on Wednesday they refuse toPowerof the procedures.

“The FTX bankruptcy is devastating and disturbing, but at the same time, not surprising,” said Sen. Cynthia Loomis (R-W), co-author of Cryptocurrency earlier this year. law Project With Sen. Kirsten Gillibrand (D-NY), he told Recode. “The bottom line is that we need comprehensive regulation to root out bad actors and ensure that consumers trust the institutions they trust with their hard-earned money.”

While the FTX crash didn’t take the stock market down with it, other crypto platforms are certainly feeling the ripple effects, and leaders in Washington are seizing the moment to call for more, or better, regulation of cryptocurrencies in general. Sen. Elizabeth Warren (D-Massachusetts) tweeted Friday that the collapse of FTX showed the need to “stronger bases. On the other hand, pro-crypto Rep. Jake Auchincloss (D-MA) said some of the proposals Congress has already put forward Weight You must keep in mind. US Treasury Secretary Janet Yellen He said that the collapse of FTX was evidence that crypto platforms need better protection for customers, while SEC Chairman Gary Gensler alleged that much of the broader crypto industry is “incompatible” with current regulations.

some blaming Investors for not closely investigating FTX before giving the company billions. However, many members of the crypto industry have Loud about their frustration with the current government approach. Many are angry at the SEC — and Gensler, in particular. Rep. Tom Emmer (R-MN), who co-leads the Congressional Blockchain Group, Accused The SEC to help FTX and Bankman-Fried try to create a monopoly, and Coinbase CEO Brian Armstrong blamed the commission for not Establish organizational clarity. Some crypto skeptics also believe that the SEC essentially dropped the ball.

“The collapse of FTX was certainly a failure on the part of financial regulators,” said Stephen Dale, a software engineer and prominent critic of the cryptocurrency industry. “Financial markets need a cop of cadence, and at the moment, the cryptocurrency market does not have one.”

FTX is not the first financial institution to fall into ruin amid Fraud allegations, and what ultimately happened with FTX may not be clear for some time. However, experts told Recode that the legal gray area in which the encryption operates makes that outcome more likely. Cryptocurrency exchanges are not Organize like banks or even Brokerage firms. While this lack of oversight has made cryptocurrencies a speculative investment — and, for some investors, a more attractive one — it has also made FTX a riskier place to store assets. Crypto accounts do not have Federal Deposit Insurance.

“It’s not necessarily possible that this fraud would have represented the same way it would have been a more traditionally organized entity,” said Rohan Gray, a professor of law at Willamette University who advised Rep. Rashida Tlaib (D-MI). “But the actual fraud itself…stealing customers’ money is a story as old as time.”

The Securities and Exchange Commission and the Commodity Futures Trading Commission (CFTC), which regulate US derivatives, along with the Manhattan attorney general’s office and the Department of Justice, are now investigating FTX’s implosion. While the company is technically Based on In the Bahamas, the exchange may have sufficient links to the United States make a case. Some said a possible conviction could hinge on evidence that Bankman Fried semen to commit fraud, while other legal experts have suggested that moving customer funds to support Alameda violates FTX Terms of Service Agreement. Investigators may also focus on FTX US, the more US-regulated side of FTX’s business, as it should have had more oversight, at least in theory.

Kristin Parlor, a professor of finance at Berkeley’s Haas School of Business, explained that FTX US has an “alphabetical set of licenses,” and that some of its trading operations the fall Under the supervision of the CFTC. “Obviously, what was missing was an overview of the big picture — the fact that the money wasn’t fenced off,” she said.

It’s not clear where the conversation about regulation will go next. The House Financial Services Committee has announce They will hold a hearing about FTX in December, and last he heard It will be held by the Senate Banking Committee. However, there is still little agreement on what the best legislation might be. Senate Committee on Agriculture delay Bipartisan cipher proposition cryptography was favored by FTX and Bankman-Fried. in Twitter DM Interview with Vox’s Kelsey Piper this week“Fuck the regulators,” Bankman-Fred said.

Some have suggested that the solution is not necessarily Passing new laws, but instead to fund and hire more people to enforce the laws we already have. Gray suggested that in addition to new laws to rein in the cryptocurrency industry and regulate stablecoins, the government should also consider legislation that supports initiatives such as public banking. Xuan-Thao Nguyen, director of the Asian Law Center at the University of Washington School of Law, told Recode that part of the solution should include looking at regulations requiring crypto losses and gains to be reported at their fair value, as well as protections for cryptocurrency custody accounts similar to those that come with Stock accounts managed by brokerage firms.

Part of the challenge, of course, will be navigating the broader crypto industry, which spends a lot of time and money lobbying for the legislation it wants. (Until very recently, Bankman-Fried was trying to do it himself.) Meanwhile, debates over which federal agencies should take the lead in regulating cryptocurrencies, and in particular, tensions between the Securities and Exchange Commission and the Commodity Futures Trading Commission, will only boil over. Definitely communicate. In March, President Joe Biden signed on executive order That launched a broad effort to regulate cryptocurrencies. While the move was largely celebrated by the crypto industry – the price of bitcoin soared – it is not yet clear if the collapse of FTX will change its approach to creating new rules. naturally, organizers in other countries.

How was Bernie Madoff legally allowed to happen? It wasn’t. Bernie Madoff has been acting illegally for so long and no one has caught him,” commented Aaron Klein, fellow in economic studies at the Brookings Institution. “There is a natural sub-current to saying, ‘Wow, this is really bad. We should have had more regulations to stop it. And you might say, “You can’t regulate honesty.”

disclosure: In August of this year, the Bankman-Fried family charity, Building a Stronger Future, awarded Vox’s Future Perfect a Grant For draft reporting for 2023. This project is now on hold.

This story was first published in the Recode newsletter. Register here So do not miss the next!





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