A House hearing on the collapse of cryptocurrency exchange FTX on Tuesday prompted lawmakers to weigh the benefits and risks of the digital asset industry and led to further debate of how it should be regulated.
"We have to separate out the bad actions of an individual from the good created by an industry and an innovation," Ranking Member Patrick McHenry, R-N.C., said before the House Financial Services Committee.
Mr. McHenry added that he believes "in the promise of digital assets and those around the world building on blockchain technologies," though some of his fellow committee members did not agree.
"My fear is that we'll view Sam Bankman-Fried as just one big snake in a crypto garden of Eden. The fact is crypto is a garden of snakes," said Rep. Brad Sherman, D-Calif., who also serves as chairman of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets.
Mr. Bankman-Fried, the founder and former CEO of FTX, was set to testify before the committee, but Bahamian authorities arrested him Monday night after federal prosecutors in the Southern District of New York indicted him on eight criminal charges. John J. Ray III, the new CEO of FTX, testified as the sole witness before the committee.
Mr. Sherman also urged his colleagues not to pass the Digital Commodities Consumer Protection Act. He said Mr. Bankman-Fried supported the bill because he wanted "to keep the SEC out of crypto."
The bill, which leaders of the Senate Agriculture Committee introduced in August, would give the Commodity Futures Trading Commission the authority to regulate the trading of digital assets that act as commodities, such as cryptocurrencies bitcoin and ether. CFTC Chairman Rostin Behnam expressed his support for the DCCPA earlier this month when testifying before the Senate Agriculture Committee, which held its own hearing on the FTX collapse.
However, lawmakers in the House Financial Services Committee differed in their opinions on which federal agency should oversee the crypto industry.
Rep. Juan Vargas, D-Calif., expressed his criticism for crypto but said "if we are going to have it, we have to regulate it," adding that the Securities and Exchange Commission should be the one to do so.
Other lawmakers criticized the SEC for their approach to digital assets.
Rep. Josh Gottheimer, D-N.J., said that "the SEC has created a patchwork of ad hoc policies" and maintained that the CFTC should be the one to regulate the industry. He said that while SEC Chairman Gary Gensler has repeatedly said the majority of crypto tokens are securities, "the SEC has not proposed a single rule to create guardrails for digital assets and has done a haphazard job of overseeing the space."
"Frankly, Chair Gensler has failed at his job," said Rep. John Rose, R-Tenn. Mr. Rose added that he is hoping "to hold the Biden administration accountable" next Congress, when Republicans take control of the House.
