Senators debated the merits of cryptocurrency and how best to regulate the industry in the wake of the FTX collapse at a Senate Banking Committee hearing Tuesday.
"Recent crypto meltdowns have made clear we need a comprehensive framework to regulate crypto products, to protect consumers and our financial system," said committee Chairman Sherrod Brown, D-Ohio.
Mr. Brown was also critical of crypto in general, asserting that digital assets are "speculative products run by reckless companies … that put Americans' hard-earned money at risk."
While several Republican senators expressed concerns about finding a way to regulate the crypto industry without stifling innovation, some Democrats on the committee doubted the benefits of digital assets.
Sen. Tina Smith, D-Minn., noted that she and fellow committee member Sen. Elizabeth Warren, D-Mass., have urged Fidelity to reconsider their decision to allow bitcoin exposure in 401(k) plans because they feel the asset is too risky.
"It's not clear to me whether many of these so-called (digital) assets are not just a bet," Ms. Smith said.
Ms. Warren also asserted that crypto is attractive to criminals, such as drug traffickers, hackers in North Korea and ransomware attackers. That's why she's reintroducing a bill that would subject crypto to anti-money laundering rules, she said, which she originally introduced in December along with Sen. Roger Marshall, R-Kan.
Ranking Member Tim Scott, R-S.C., placed blame on the SEC, questioning why the agency didn't act before the fall of FTX and criticizing its response to the crash.
"To date, the SEC has failed to take any meaningful, preemptive action to ensure this type of catastrophic failure does not happen again," Mr. Scott said. He also called on SEC Chairman Gary Gensler to appear before Congress to discuss the agency's approach to crypto regulation.
Last Congress, leaders of the Senate Agriculture Committee proposed a bill to give the Commodity Futures Trading Commission greater oversight of the crypto market, allowing the agency to regulate the trading of digital commodities.
However, Lee Reiners, policy director at the Duke Financial Economics Center and a lecturing fellow at Duke Law, advocated for Congress to recognize cryptocurrencies as securities and give the SEC exclusive authority to regulate the industry.
"The SEC simply has more expertise, more resources and more appetite for enforcement in the crypto realm than the CFTC does," Mr. Reiners said.
In recent months, the SEC has charged several crypto companies with offering and selling unregistered securities, including Genesis Global Capital and Gemini Trust Company.