A US senator pushing for greater federal regulation of cryptocurrencies says the collapse of Sam Bankman-Fried’s FTX exchange should be a catalyst for lawmakers to start paying attention to crypto.
In an interview at the Financial Times’ Crypto and Digital Assets Summit, Senator Cynthia Lummis said FTX’s failure, which has resulted in $8bn in missing customer deposits, highlighted the need for greater regulation in the nascent crypto industry. Lummis, a Republican from Wyoming, pushed as a solution a bill which she introduced in Congress in June with Kirsten Gillibrand, a Democratic senator from New York.
“I hope [FTX’s collapse] highlighted with members of Congress who have not taken the time to learn more about this asset class, that it’s time for them to learn more about it so we can engage in proper regulation,” Lummis said.
The senator gained notoriety in Congress as an early champion of cryptocurrencies, buying her first bitcoin almost a decade ago; she still owns it but keeps it in a blind trust.
She argued that customers like herself, who use crypto wallets to store their digital assets and are not actively trading them, do not require more oversight. Instead her push is for stricter rules around companies like FTX which trade and have custody of clients’ assets and are engaged in circular lending practices such as rehypothecation, where the same asset can be lent multiple times.
“We do it with other types of assets when rehypothecation happens. We need to do it with cryptocurrencies as well,” Lummis said.
Lummis said her crypto bill would ban the commingling of customer assets with investments belonging to an exchange — a practice which was at the heart of the losses at FTX. It would also use the so-called Howey Test, which relies on a Supreme Court precedent, to determine which cryptocurrencies are or are not tradable securities. This clarification could help more mainstream financial firms to enter the space.
Her bill remains in the Senate finance committee, and she claimed to be “very hopeful” that it would be “high on our legislative agenda” when Congress reconvenes in January.
In the meantime, Lummis said she is working with regulators at the US Securities and Exchange Commission to ensure that her bill would not create loopholes for some non-crypto companies to evade oversight.
“We’re hearing from certain people within the SEC that there may be some unintended consequences in the bill that would allow people currently regulated by the SEC to redefine their assets as digital assets under Lummis-Gillibrand, and thereby have a lower level of regulatory scrutiny” Lummis said.
“That’s not our intent. We don’t want that to happen.”