Investors May Have Avoided FTX If SEC Had Addressed Bitcoin ETFs, BitGo CEO Says
The collapse of crypto exchange FTX and other bearish events in the space were at the center of discussions among lawmakers and witnesses during the first hearing of the United States House Committee on Financial Services’ subcommittee on digital assets, financial technology and inclusion.
Addressing lawmakers at the March 9 hearing, BitGo co-founder and CEO Mike Belshe criticized the US Securities and Exchange Commission, or SEC, for enforcement actions against crypto firms that are “trying to do it right” — i.e., communicating with regulators and complying a way to operate in the country. He cited BitGo’s experience of going through the process of approaching the SEC in 2018 to seek a regulatory path forward on the question of how the firm should deposit assets, only to wait more than 4 years for a definitive answer.
According to Belshe, the SEC’s reluctance to address a “fundamental” regulatory issue like the issuance of a Bitcoin (BTC) exchange-traded fund apparently could have opened the door for bad actors like Sam Bankman-Fried to run FTX the way he did. The former CEO faces charges from the SEC, the Commodity Futures Trading Commission and federal prosecutors related to the transfer of user funds between the exchange and Alameda Research.
“You have to wonder if we couldn’t have avoided the huge amounts that flowed into FTX if the basic principle of a Bitcoin ETF had been granted and approved by the SEC,” Belshe said. “There had been 25+ valid applications – some from Invesco and other reputable firms that have been doing ETFs for many years in the past.”
Much of the discussion among lawmakers and industry experts at the hearing centered on which federal agencies could regulate certain crypto assets should Congress pass related legislation. Some Republican representatives appeared to be particularly critical of the Biden administration’s approach to crypto, as evidenced by the hearing’s title calling its actions an “attack on the digital asset ecosystem.”
“This report summarizes President Biden’s policy plan to unlawfully abuse the administrative state to push US crypto firms and their clients in the US into offshore, unregulated, opaque and unsafe markets,” said Representative Tom Emmer, citing a White House report January 27. on reducing the risk associated with crypto. “This administration is weaponizing the banking sector to quash legal crypto activity here in the United States, using scare tactics to drive an entire industry out of the country.”
Other witnesses at the hearing were more critical of crypto as a whole rather than focusing on blaming a single agency, political party or presidential administration. Representative Brad Sherman, a noted critic of the space, referred to crypto as a “scourge” on the financial system. Lee Reiners, the policy director of the Duke Financial Economics Center, argued that while FTX was a “bad apple,” the entire crypto industry was “rotten.”
“Crypto and the unique nature of crypto was what drove FTX’s rise, and it’s what caused FTX to collapse in an instant,” Reiners said.
Related: Samsung’s investment arm launches Bitcoin Futures ETF amid growing crypto interest
The House subcommittee hearing was the first in the new session of Congress to address issues related to the crypto market and the collapse of FTX since December 2022. Lawmakers with the Senate Banking Committee held their own hearing examining the impact of the ‘crypto crash’ in February.
