‘Prudent regulation of cryptocurrencies is indeed needed’: The White House is watching the FTX implosion and doesn’t like what it sees

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If you haven’t been paying attention to crypto recently, you’ve missed yet another sickening wipeout as billions of dollars have gone up in smoke.

“This is something that clearly we monitor and that we see as an important issue,” White House Press Secretary Karine Jean-Pierre told reporters during a press briefing on Thursday, when asked about the spectacular $32 billion wipeout of crypto exchange FTX, led by the Democrats’ second-biggest donor this cycle, the former billionaire Sam Bankman-Fried.

Without proper oversight, she added, cryptocurrencies risk harming everyday Americans. “The most recent news further underscores these concerns and highlights why prudent regulation of cryptocurrencies is indeed needed. The White House, along with the relevant agencies, will again closely monitor the situation as it develops.”

On Tuesday the world’s largest crypto exchange, Binance, announced it had signed a non-binding letter of intent to buy FTX—a rescue attempt after FTX experienced $5 billion worth of withdrawal requests in a single day. Within 24 hours, the rescue unraveled, leaving FTX and Bankman-Fried in the dust. 

The White House has been monitoring the crypto situation since March, when President Joe Biden issued an executive order directing the federal government to begin the process of considering how it would regulate digital assets. Instead of a “crypto crackdown,” though, the industry largely welcomed the document as a step toward legitimization and a “watershed” akin to commercial internet entering the mainstream in the mid-1990s.

Just a few months later, though, the government was exposed as moving too slowly for events on the ground, when the first wave of the “crypto winter”  took crypto’s market cap from $3 trillion to $1 trillion. Several major crypto firms went bust, and Bankman-Fried emerged as a JP Morgan-like figure, stepping in to bail out struggling parties. 

For its part, Washington is playing a sort of regulatory game of thrones, as the SEC, CFTC and Congress all float different regulation plans. SEC chair Gary Gensler has been steadfast that many digital assets should be classified as “securities” and fall under his agency’s jurisdiction. Rostin Behnam, the chair of the Commodity Futures Trading Commission, said just last month that “It’s a pretty cynical view to suggest two agencies can’t figure it out and work together.”

Coinbase’s CEO Brian Armstrong says that FTX’s implosion should be a catalyst for the U.S. government to come up with regulations for the crypto industry.

“This is an opportunity for the United States to really be the one to put out some more of this clear regulation,” he told CNBC on Thursday. “Frankly, the U.S. is a little bit behind here.”

Armstrong pointed to FTX being technically based offshore, as a consequence of the lack of “regulatory clarity” in the U.S. He says without rules in the U.S., more of the crypto industry will go offshore and harm American consumers.

Meanwhile, a person familiar with the matter told the AP today that both the SEC and Department of Justice are investigating FTX for criminal activity and potential securities offenses, which could mean dispensing regulation of the potential criminal complaint variety.

Update, November 10, 2022: This article was updated to include comments made by Coinbase’s CEO Brian Armstrong.

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