Democrats renew push for cryptocurrency regulations after FTX collapse

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DDemocratic lawmakers and government officials are calling for more regulations on cryptocurrencies after one of the largest exchanges came close to collapse.

Crypto critics are stepping up pressure for new rules after the apparent collapse of exchange FTX, which is facing a massive loss of confidence amid reports of misleading behavior and is seeking to be acquired to reassure customers and investors that they will get their money back. Its struggles have caused crypto market to fall in value and led to government investigations.

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“The collapse of one of the largest crypto platforms shows how much of the industry appears to be smoke and mirrors,” Sen. Elizabeth Warren (D-MA) tweeted Wednesday. “We need more aggressive enforcement, and I will continue to push to enforce the law to protect consumers and financial stability.”

Other Democrats called for legislation. “Now more than ever, it is clear that there are major consequences when cryptocurrency entities operate without robust federal oversight and customer protection,” House Financial Services Committee Chair Maxine Waters (D-CA) said in a statement Thursday. Waters noted that she has been working on legislation to regulate the industry and that last week’s developments “highlight the urgent need for legislation.”

Waters’ legislation would create a financial technology task force as well as establish a federal framework that would establish safeguards for trading stablecoins, which are digital currencies that hold value based on fixed assets.

“It is critical that our financial watchdogs investigate what led to FTX’s collapse so we can fully understand the misconduct and abuses that occurred,” Senate Banking Committee Chairman Sherrod Brown (D-OH) said in a statement. “I will continue to work with them to hold bad actors in crypto markets accountable. I am committed to finding the best way forward to protect consumers and the stability of the US markets and banking system.”

The Securities and Exchange Commission and the Department of Justice are coordinating to deal with the fallout from FTX’s collapse. The company was slated to be acquired by Binance on Monday, only for Binance to pull out after FTX founder Sam Bankman-Fried withheld the company’s US operation from the acquisition. The deal prompted FTX to freeze withdrawals from the platform.

Crypto investors need better protections in ‘substantially non-compliant’ space, SEC chairman Gary Gensler told CNBC,

“The runway is running out. Investors around the globe are getting hurt,” Gensler added. The SEC chairman has long argued that more cryptoassets should be considered securities, meaning they would be regulated by the agency. Bankman-Fried, the second-largest Democratic donor in the last year, has pushed for new rules.

Crypto industry leaders said lawmakers had an equal role to play in the FTX fiasco. The reason the offshore exchange failed was that “the SEC failed to create regulatory clarity here in the US, so many US investors (and 95% of trading activity) went offshore.” argued Coinbase CEO Brian Armstrong. Other CEOs quickly echoed Armstrong’s remarks, noting that a lack of regulations has made the US less attractive than Singapore, which has regulations for crypto.

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The fallout from the end of the FTX-Binance deal had damaging effects on the crypto market. Bitcoin saw its value drop 17% on Wednesday compared to the previous day. Ethereum, the second largest cryptocurrency by market capitalization, shed more than 25% of its value on Wednesday.



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