A top Senate Democrat on Tuesday pressed Binance, Coinbase and other major cryptocurrency exchanges to explain how they would protect their customers in the event of a financial calamity, as Washington braces for further fallout from the collapse of FTX.
Wyden directed his letters to the U.S. division of Binance, Coinbase, Kraken, KuCoin, Bitfinex and Gemini, major exchanges that allow customers worldwide to buy and sell various digital tokens. The senator asked them to reveal more information about the way they manage customers’ deposits and assets. Wyden also requested the firms’ balance sheets, while demanding they explain their policies in the event of a crisis, such as bankruptcy.
In seeking that data, Wyden pointed to a wide array of federal laws that protect investors in registered securities or customers at regulated banks — but, often, not those who purchase crypto. He cited that discrepancy as he blasted the “outrageous mismanagement” at FTX, which had been the world’s third-largest cryptocurrency exchange until a liquidity crisis plunged it into insolvency this month.
“If these protections had been in place before the failure of FTX,” Wyden stressed, “far fewer retail investors would be facing precipitous financial harm today.”
Wyden’s missives came as the FTX meltdown continued to rattle the broader cryptocurrency ecosystem. The latest casualty arrived Monday, when BlockFi, a crypto lender tied to FTX, indicated that it had more than 100,000 creditors as it filed for bankruptcy.
The widening fallout drove down the price of bitcoin and other tokens, and it fueled continued scrutiny in Washington, where lawmakers for years had neglected the crypto industry. Over that same period, Democrats and Republicans also amassed increasingly large campaign donations from crypto magnates, including FTX founder Sam Bankman-Fried and his subordinates during the 2022 elections.
Lawmakers now plan to convene several hearings to explore cryptocurrency and the government’s oversight of it. On Thursday, the Senate Agriculture Committee is set to question Rostin Behnam, the chairman of the Commodity Futures Trading Commission.
Behnam generally is seen as supportive of the industry. He also has worked alongside the committee’s leaders — Sens. Debbie Stabenow (D-Mich.) and John Boozman (R-Ark.) — to advance legislation that would expand the power of the CFTC to oversee crypto, an idea advanced by Bankman-Fried personally. In recent days, lawmakers have said they are reevaluating the bill given its ties to FTX.
Two weeks later, the House Financial Services Committee hopes to question the FTX founder directly as well as the company’s rivals, including Binance, at what could be the first of multiple hearings. While Bankman-Fried has not confirmed that he intends to testify, Rep. Maxine Waters (D-Calif.), the outgoing chairwoman of the panel, said the session is meant to ensure that “this never happens again.”
Across the Capitol, Democrats remain torn on the need for new legislation that specifically targets cryptocurrency. In an interview last week, Wyden first promised a “consumer protection” package targeting cryptocurrency, noting he had been working for “months” to rally other lawmakers to support the yet-unreleased bill.
Many senior lawmakers, including Sen. Sherrod Brown (D-Ohio), the leader of the Senate Banking Committee, have said they believe that the Securities and Exchange Commission already has ample authority to pursue the worst abuses in digital finance. Nevertheless, any attempts to rein in the industry could stall next year, when Republicans are set to inherit the House, potentially paving the way for gridlock in a split-party Capitol.