FOR IMMEDIATE RELEASE
November 8, 2022
CONTACT:
Carter Dougherty
carter@ourfinancialsecurity.org
(202) 251-6700
Collapse of Major Crypto Exchange FTX Is a Reminder of Crypto’s Instability
Consumer Advocacy Groups Urge Regulators to Step Up Scrutiny; Warn Congress to Avoid Watered-Down Policy Responses
Washington, DC – Today’s announcement by crypto exchange FTX that it has signed an agreement to be acquired by its larger rival exchange, Binance, has sent shockwaves through the digital asset industry. This comes after questions around the company’s solvency sent the company into a tailspin and is a breathtaking reminder of the volatility and instability of the crypto industry. Even for an industry accustomed to turmoil and scandal, the collapse of FTX – seen by many as one of the most dominant crypto firms in the market – after its online feud with Binance has many observers asking questions about what actually happened, what’s next, and what this means for the viability of crypto assets in the long-term.
“While this turn of events is shocking, it shouldn’t be a total surprise – digital asset firms, even those purporting to be sophisticated financial firms – have a long and sordid record of collapsing quickly due to mismanagement, market manipulation or other factors,” said Mark Hays, senior policy analyst at Americans for Financial Reform and Demand Progress.
“FTX was fine until it wasn’t. This is yet another example of digital asset firms learning the hard lessons of the past one hundred years of financial crises and regulatory reforms. If the digital asset industry has a real future, they must meet at least the minimum safeguards which exist for traditional financial institutions so as to prevent or mitigate such fiascos. Pretending that the industry can dictate its own standards only puts consumers, investors, and financial markets at more risk.”
Regulators should be on high alert should they need to intervene if these problems in the crypto markets grow larger. However, policymakers shouldn’t rush to offer half-baked solutions. For example, Congress is considering a markup of legislation (S. 4760 -The Digital Commodities Protection Act) in the upcoming lame-duck session that would seek to regulate some digital assets and actors as commodities and commodity traders under the Commodity Futures Trading Commission (CFTC). “We’re concerned that the bill, which was heavily influenced by crypto industry lobbying, could actually usher in a weak regulatory framework for digital assets that would fail to adequately protect consumers and investors and might instead legitimize questionable crypto business practices and models not unlike what we’ve seen today,” said Hays.
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