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House to probe FTX collapse as Biden administration warns of crypto risks

A hearing next month will investigate what went wrong with the cryptocurrency exchange

FTX founder Sam Bankman-Fried speaks during a House hearing in 2021. Congress is now investigating the collapse of the cryptocurrency exchange. (Jabin Botsford/The Washington Post)

The House Financial Services Committee will hold a hearing next month about the collapse of cryptocurrency exchange FTX, as Congress ratchets up its scrutiny of the broader crypto industry, Rep. Maxine Waters (D-Calif.), the panel’s leader, announced on Wednesday.

The scheduled hearing comes as Treasury Secretary Janet Yellen warned separately that the “recent failure of a major cryptocurrency exchange” should prompt the U.S. government to conduct “more effective oversight,” with Congress and the Biden administration working to “fill the regulatory gaps.”

The heightened attention to digital markets reflected the swift rise and fall of FTX, the world’s third-largest cryptocurrency exchange by volume. A series of risky bets by its founder, Sam Bankman-Fried and his related investment fund, Alameda Research, appear to have created a liquidity crisis, sparking the digital equivalent of a bank run — and sending the crypto exchange into bankruptcy.

The collapse eviscerated Bankman-Fried’s wealth while rattling Silicon Valley, where investors began writing off million-dollar sums — and start-ups linked to FTX braced for financial impact of their own. In the nation’s capital, meanwhile, the fallout has sparked some early soul-searching among lawmakers who eagerly took Bankman-Fried’s political donations and policy advice ahead of the 2022 midterm elections.

In response, the top banking-focused panel in the House said Wednesday it “expects” to hear directly from Bankman-Fried, part of an inquiry that would likely expand as they consider the need for a legislative response.

“The fall of FTX has posed tremendous harm to over one million users, many of whom were everyday people who invested their hard-earned savings into the FTX cryptocurrency exchange, only to watch it all disappear within a matter of seconds,” Waters said in a statement. “Unfortunately, this event is just one out of many examples of cryptocurrency platforms that have collapsed just this past year.”

The top Republican on the panel, Rep. Patrick T. McHenry (N.C.), joined Waters in supporting the probe. McHenry stands to inherit the committee if Republicans capture control of the House as expected.

“Oversight is one of Congress’s most critical functions and we must get to the bottom of this for FTX’s customers and the American people,” McHenry said. “It’s essential that we hold bad actors accountable so responsible players can harness technology to build a more inclusive financial system.”

Bankman-Fried declined to comment.

Sam Bankman-Fried charmed Washington. Then his crypto empire imploded.

The Biden administration, meanwhile, pointed to its recent work to study and identify risks in cryptocurrency markets. Yellen said some of those very concerns “were at the center of the crypto market stressed observed over the past week,” referring to FTX.

While Yellen noted the U.S. government has strong financial regulations designed to protect investors and consumers, she stressed they needed to be “enforced rigorously” in the case of cryptocurrency to prevent greater risk to the economy.

“Going forward, it’s vital we do what is necessary to address these concerning risks and act to protect consumers and promote financial stability,” she said.

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