- Senator Pat Toomey said FTX was opaque, centralized, and dishonest while cryptocurrencies are open-source, decentralized, and transparent.
- He added that just because of a bad player in the industry, it makes no sense to ban cryptocurrencies entirely as doing so would drive innovation to other markets, he warned.
The collapse of the crypto exchange FTX last month in November 2022 has been one of the watershed moments in the history of crypto markets, drawing the attention of regulators from around the world. Many in the regulatory circles believe that the FTX collapse will push the U.S. SEC to bring a complete ban on digital assets.
However, the lawmakers remain completely divided over this matter. Last week, retiring U.S. Senator Pat Toomey (R-PA) spoke at the Senate Banking Committee adding that the collapse of the FTX exchange is not an indictment against cryptocurrency. The Senator added:
There was unauthorized lending of customer assets to an affiliated entity, and there were fraudulent promises to investors and customers about FTX’s operations. These are outrageous and completely unacceptable.
I want to underscore a bigger issue here: The wrongful behavior that occurred here is not specific to the underlying asset. What appears to have happened here is a complete breakdown in the handling of those assets.
The Senator further added that lawmakers should separate potentially illegal actions from lawful and innovative cryptocurrencies. He further added that cryptocurrencies “are actually software”. Senator Toomey explained: “The code committed no crime. FTX and cryptocurrencies are not the same things. FTX was opaque, centralized, and dishonest. Cryptocurrencies are open-source, decentralized, and transparent.”
Why It Makes No Sense to Pause Crypto
Last week, Senator Sherrod Brown (D-Ohio) proposed that the U.S. SEC and the CFTC should not shy from proceeding to take strong actions and banning cryptocurrencies. He described the current market as a “complicated, unregulated pot of money,” that is larger than just FTX.
However, U.S. Senator Pat Toomey added that one must not justify banning crypto following the FTX meltdown. He added that those suggesting to pause cryptocurrencies are profoundly misguided and “impossible”. He said that such measures will be akin to enacting draconian, authoritarian policies. Senator Toomey added that cryptocurrencies cannot be stopped and any action to ban them could lead to the technology migration offshore.
“The 2008 financial crisis involved the misuse of products related to mortgages. Did we decide to ban mortgages? Of course not. A commodity brokerage firm run by former New Jersey Senator John Corzine collapsed after customer funds — including U.S. dollars — were misappropriated to fill a shortfall from the firm’s trading losses. Nobody suggested that the problem was the U.S. dollar and that we should ban it.”
Senator Toomey added that Congress must provide greater regulatory clarity to avoid FTX-like incidents in the future “so business flows to prudent, sensible, well-regulated American crypto exchanges”.
Introducing Stablecoin TRUST Act
Interestingly, the retiring Senator from Pennsylvania also introduced the Stablecoin TRUST Act last week. This act would establish a regulatory framework for “payment stablecoins” and will guide Congress towards a path of “sensible regulation of cryptocurrencies”. In the press release, the Senator said:
I hope this framework lays the groundwork for my colleagues to pass legislation next year safeguarding customer funds without inhibiting innovation. This bill will also ensure the Federal Reserve, which has displayed significant skepticism about stablecoins, won’t be in a position to stop this activity.