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Federal regulation of cryptocurrencies stalled in Washington state

The conviction of former cryptocurrency mogul Sam Bankman-Fried for stealing at least $10 billion from customers and investors has reignited the debate over whether the U.S. government should regulate the cryptocurrency industry.

Last year, when cryptocurrencies crashed and several companies collapsed, the U.S. Congress considered a number of ways to regulate the industry in the future. However, most of these efforts came to nothing, especially in a chaotic year dominated by geopolitical tensions, inflation, and the upcoming 2024 election.

Ironically, the failure of Bankman Fried’s FTX firm and his subsequent arrest late last year may have contributed to the stalled regulatory momentum. Prior to FTX’s collapse, Bankman Fried spent millions of dollars (allegedly illegally taken from customers) to influence the debate on cryptocurrency regulation in Washington and push for action.

In the absence of Congress, federal regulators such as the U.S. Securities and Exchange Commission (SEC) have stepped in to take enforcement action against the industry, including filing lawsuits against the two largest cryptocurrency exchanges, Coinbase and Binance.

PayPal said in a Wednesday filing with securities regulators that it recently received an SEC subpoena related to the PayPal Dollar stablecoin.

However, the U.S. Congress has yet to act.

Senators Debbie Stabenow (Democrat, Michigan) and John Boozman (Republican, Ohio) proposed last year that regulation of cryptocurrencies Bitcoin and Ether be transferred to the Commodity Futures Trading Commission (CFTC). Stabenow and Boozman lead the Senate Agriculture Committee, which has the authority to regulate the CFTC.

A major stumbling block in the Senate is Senator Sherrod Brown, Democrat of Ohio, chairman of the Senate Banking Committee.

Brown has always been highly skeptical of the concept of cryptocurrencies, and he has generally been reluctant to gain congressional support through regulation. He has held numerous hearings on cryptocurrencies, ranging from the negative impact on consumers to the use of cryptocurrencies to fund illegal activities, but his committee has yet to introduce any legislation.

“Every day, Americans lose money in cryptocurrency scams and frauds,” Brown said in a statement following Bankman-Fried’s conviction.” We need to crack down on abusive behavior and can’t let the cryptocurrency industry write its own rulebook.”

This summer, the House Financial Services Committee passed a bill that would put regulatory guardrails on stablecoins (cryptocurrencies that should be backed by hard assets like the U.S. dollar). But the White House and Senate showed no interest in the bill.

President Joe Biden signed an executive order on government regulation of cryptocurrencies last year, urging the Federal Reserve to explore whether the central bank should step in and create its own digital currency. But so far, there has been no progress on that front.

Consumer advocates are skeptical about the need for new rules.

Dennis Kelley, president of Better Markets, a nonprofit organization dedicated to “building a safer cryptocurrency market,” said, “There’s no need for any crypto legislation that involves special interests, which would only legitimize an industry that is being exploited by speculators, financial predators and criminals. Dennis Kelleher, president of Better Markets, a nonprofit organization dedicated to “building a safer cryptocurrency market for all Americans,” said Better Markets is a nonprofit organization dedicated to “building a safer financial system.”

Federal regulation of cryptocurrencies stalled in Washington state

“Furthermore, almost everything the cryptocurrency industry does is already explicitly covered by existing securities and commodities laws, and all other law-abiding financial companies in the country comply with those laws,” he said.

“The current laws regarding fraud and securities are sound,” said Bartlett Collins Naylor, a financial policy advocate at Public Citizen’s Congress Watch.

Meanwhile, cryptocurrency advocates are quick to point out that it’s banker Fried who’s on trial, not the industry as a whole.

Sheila Warren, CEO of the Cryptocurrency Innovation Council (CIC), said, “The jury found that this was a clear case of fraud perpetrated by a small group of people.” The U.S. needs clarity on regulation in the digital asset space, but it doesn’t matter. …… Policymakers were aware of this reality before this trial and will continue to do so.”

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