The collapse of Sam Bankman-Fried’s FTX, accompanied by the disappearance of billions of dollars, has invariably led to calls for more regulation of the fast-growing — and now fast sinking — world of crypto. The Biden White House, U.S. Treasury Secretary Janet Yellen, Federal Reserve officials, and Coinbase CEO Brian Armstrong are all in agreement that more oversight is needed.
But one of crypto’s harshest critics has a hot take on the subject, arguing that new laws or regulations are unnecessary — and could end up ensnaring many more Americans than those who are currently taking a flyer on crypto.
“We don’t need new legislation or regulation,” said Dennis Kelleher, co-founder and CEO of Better Markets in a lengthy analysis of the FTX debacle. “We need politicians to fully fund the Securities and Exchange Commission and to publicly support them in cracking down on the crypto industry.”
Kelleher argued that current laws are “fully adequate to address the lawlessness going on in crypto.” He estimates that about 80 percent of crypto tokens fall within the “black letter law of a security (around since 1933)” — which is an argument that SEC Chair Gary Gensler has also made. But, said Kelleher, the crypto industry simply refuses to comply with both securities and commodities laws. “The vast majority of crypto products are unregistered securities and commodities being traded on unregistered exchanges.”
Following the FTX collapse, Gensler reiterated his concerns about the unwillingness of crypto firms to register with the agency, telling CNBC that a “lack of disclosure, a misuse of customer funds, and high leverage can create ‘toxic combinations.’”
Kelleher added that “crypto does not want to register because then crypto would have to comply with the customer/investor protection and financial stability rules like every other business.”
He said “the clear strategy has always been to just break the law and at the same time buy as many politicians as possible to get special interest legislation that would give it the weakest, most friendly, possible regulator and regulation.”
Crypto exchanges spent almost $30 million lobbying Congress in the past two years, and FTX was one of the top spenders. FTX’s Bankman-Fried was also a top donor to Democrats this past election cycle. Notably, he gave the maximum allowed ($16,600) to Sen. Kristen Gillibrand, the New York Democrat who co-sponsored a bill with Wyoming Republican Senator Cynthia Lummis that would make the Commodity Futures Trading Commission the top crypto regulator, among other provisions favorable to the industry. The crypto industry widely views the CFTC as more lenient than the SEC, in part because it does not have the same investor protection mandate. (In the wake of the investigation into potential fraud at FTX, Sen. Gillibrand said she is donating the money to a nonprofit.)
The Lummis/Gillibrand bill has gone nowhere, but had it been enacted in 2021 prior to the Bitcoin peak in November, Kelleher said, “the crypto industry would have access to the Federal Reserve’s payments system.” That would have led more financial institutions to get involved in crypto, he explained, creating “a buying, selling, and trading crypto spree (with multiple layers of derivatives created, packaged, and distributed throughout the world).”
If that had happened, the damage would have “rippled through the financial system,” Kelleher said.
“Regulators at the banking agencies and the SEC withstood enormous political and industry pressure to allow crypto access into the core of the financial and banking system,” he explained, saying that is the only reason “the ongoing crypto carnage hasn’t turned into a financial crisis, crash, and bailouts.”
More than $2.5 trillion has been vaporized in the crypto market in less than 12 months.
Now, Kelleher argued, “crypto is still a danger and looking for a legislative bailout.”