'We Haven’t Seen Anything Yet’: Introducing CoinDesk’s ‘Policy Week’

The fall of FTX changed the game for crypto in Washington, D.C.

As CoinDesk’s Jesse Hamilton writes today, Congress is ready to clamp down on the industry. Members there are shocked by the size of the crypto exchange's collapse, comparing it to the fall of the Enron energy company, and they’re embarrassed at being taken in by Sam Bankman-Fried (SBF) and his political contributions.

For two years, SBF was crypto’s number one proxy in D.C., an educator and schmoozer who charmed everyone with his youth and scruffy look. He was the source, along with his FTX colleagues, of political funding for one in three members of Congress (196 senators and representatives), according to a CoinDesk investigation. That makes the impact of FTX’s fall in the Congress all the more powerful, Hamilton writes.

This article is part of CoinDesk’s “Policy Week.”

Many legislators gave their FTX money back or donated it to charity. Chastened by the failure, many of those 196 are markedly more critical of crypto.

They chide Gary Gensler, the Securities and Exchange Commission (SEC) chair, for allegedly taking meetings with SBF but not interceding on FTX (and businesses like it). The pressure is on the regulator to use all the tools at his disposal to enforce securities law, with implications for exchanges that, according to the logic of Gensler’s statements on tokens, have been dealing in unregistered securities.

While some crypto lawyers complain about a lack of “regulatory clarity,” others point to Gensler’s repeated statements that “most tokens are securities.” If the SEC does start enforcement actions, then Gensler can reasonably tell the crypto industry, “I told you so.”

FTX’s collapse has led to a noticeable uptick in partisanship. During the bull run, there was some ideological comity on digital asset issues. Now Republicans and Democrats are split on the meaning of FTX and SBF and how to regulate crypto.

On one side: Democrats (some, not all) say SBF’s misdeeds are a function of crypto, highlighting its supposed laxness and irresponsibility. How else do you explain the rise of a hugely rich and powerful man-child? “The collapse of one of the largest crypto platforms shows how much of the industry appears to be smoke and mirrors,” Sen. Elizabeth Warren (D–Mass.), a longtime crypto critic and standard bearer for this wing, has said. On the other side is the idea that SBF is an old-fashioned fraud, the sort seen many times before – and, therefore, not a function of crypto. “Sam Bankman-Fraud and his colleagues are as old as finance. This is about centralization. They controlled everything,” Rep. Tom Emmer (R-Minn.), the new House Majority Whip and firm crypto champion, tells CoinDesk’s Jeff Wilser in an interview for “Policy Week” today.

In this analysis, decentralization (rather than the conglomerate FTX was trying to build) is the way forward, because it obviates undue financial centralization and power.

“What we’re talking about is decentralization,” says Emmer. “That’s what blockchain and crypto rides on. That’s what it’s all about. Open, permissionless, transparent.”

Republicans “blame crypto’s problems on humans,” Hamilton says, “while cautioning against slowing down innovative technology.”

Democrats say crypto is an “untamed beast that steals people’s life savings and doesn’t seem useful for anything,” he added.

The focus from the House of Representatives side, led by Patrick McHenry (R-N.C. ), chairman of the powerful House Financial Services Committee, will be on “market structure guardrails” and “stablecoin guardrails,” Emmer says.

Ron Hammond, director of government relations at the Blockchain Association, expects action within weeks. “It‘s going to come a lot sooner than folks think,” he tells Jesse Hamilton.

Meanwhile, U.S. regulators are gearing up to take on the crypto industry, armed with the rules and resources they already have and angling Congress for more. Gary Gensler is under pressure to wield a mightier stick (and explain meetings he had with SBF). That’s likely to lead to a higher volume of enforcement actions, some lawyers have told CoinDesk, perhaps even against some of the industry’s biggest players.

Joshua Ashley Klayman, a New York digital assets attorney who has worked closely with the SEC, told CoinDesk that, while the volume of SEC enforcement has been increasing, it hasn’t included actions against the big kahunas of the space. “In terms of SEC enforcement, if people think we’ve seen it all, I think we haven’t seen anything yet. I think it’s just getting started because while we’ve heard repeatedly from Chair Gensler and others about potential enforcement against digital asset trading platforms, we haven’t really seen that enforcement,” she says. “SEC Chair Gary Gensler has said the ‘runway is getting shorter’ for platforms to come in and register. And if the runway’s getting shorter, then presumably eventually the runway is going to run out.”

The SEC is likely interested in exchanges for the important reason that they are where crypto touches retail, setting off investor protection concerns the SEC is obliged to consider.

The same sort of discussions are being held in many places around the world. The influence of FTX and SBF runs wide, befitting a company that wanted to bestride the world. We’ll publish reports from the European Union, South Korea, Japan, India, Singapore, Hong Kong and several other places as part of CoinDesk’s Policy Week, which starts today and runs through Jan. 27.

As well as features, we’ll have opinion pieces from a range of contributors. We hope you enjoy this comprehensive look at crypto policy at a reckoning moment for the crypto industry.