Members of the Senate are increasingly discussing regulation of cryptocurrency markets after the implosion of FTX, the world’s second-largest cryptocurrency exchange threatened to take down portions of the financial system. The Wall Street Journal’s Dave Michaels reports:
Lawmakers should pass legislation that would impose strict rules on cryptocurrency exchanges, including rules to limit or prohibit the conflicts of interest that contributed to FTX’s collapse, Commodity Futures Trading Commission Chairman Rostin Behnam said Thursday.
Speaking to members of the Senate Agriculture Committee, Mr. Behnam said he still supported a bill that would give his small agency authority to police trading in bitcoin, ether and other digital assets classified as commodities. FTX and its founder Sam Bankman-Fried also lobbied in support of the legislation before the firm’s collapse last month.
The immediate future of the legislation is unknown. FTX’s support of the bill raises questions about its influence over it. FTX’s goal was to steer oversight of crypto into the hands of what was perceived to be a friendlier regulator than the Securities and Exchange Commission, which has authority to write stricter rules that most crypto companies oppose.
Mr. Bankman-Fried’s empire blew up last month amid reports that his exchange, FTX, misused customer funds by sending them to an affiliated trading firm, Alameda Research, that had made risky venture investments. Mr. Bankman-Fried has said in recent interviews that he neglected risk-management at FTX, but denied knowing that customer money was wrongly used.
Senate Agriculture Committee Chairwoman Debbie Stabenow (D., Mich.) said her committee’s legislation addresses the risks posed by practices that took down FTX.
“When exchanges accept customer funds for trading, they must not be allowed to gamble with those funds,” Ms. Stabenow said. “They must not be allowed to invent products that have little to no intrinsic value and accept them as collateral for loans. And they must not be allowed to self-deal.”
The bill written by Ms. Stabenow and the committee’s ranking member, Sen. John Boozman (R., Ark.), would regulate trading in bitcoin, ether and some other cryptocurrencies through the commission. Giving the CFTC, a relatively small agency, authority to police trading in the most valuable crypto assets would mark a substantial expansion of its authority.
Before FTX’s bankruptcy, the CFTC also met with FTX about the company’s proposal to allow its U.S. derivatives exchange, LedgerX, to manage the risk of leveraged customer trades without the involvement of brokers. FTX acquired LedgerX last year. That derivatives exchange is solvent and its customer funds are safe, Mr. Behnam said, because it was subject to CFTC rules that impose risk-management and customer-protection standards.
Mr. Bankman-Fried met with Mr. Behnam and other top CFTC officials 10 times over the past 14 months, Mr. Behnam said Thursday. The chairman said FTX was “dogged” in its pursuit of the proposal, which would have marked a radical change in the structure of derivatives markets. LedgerX has withdrawn the proposal.
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