Centralization Villain Gets More Hearings While Decentralization Watches

With FTX continuing to burn like a sun that never sets, Congress is undertaking its review of the cryptocurrency exchange’s implosion with two hearings this week – one quotable,  the other that checks a box.

Hearing #1 – likely very quotable

On Tuesday, December 13 at 10:00a, Chairwoman Maxine Waters (D, CA), Ranking Member Patrick McHenry (R, NC) and the House Financial Services Committee convene a hearing titled  “Investigating the Collapse of FTX, Part I.” (Live stream)

The scheduled witness list for the House Financial Services hearing is exactly who you’d want, at a minimum, for a one-day hearing: the current CEO and the former one:

      • John J. Ray III, current Chief Executive Officer, FTX Group
      • Sam Bankman-Fried (SBF), Founder and Former CEO, FTX Group

Read the HFS Committee’s hearing memorandum here.

Mr. Ray is well-known for his work in corporate disasters such as Enron and Nortel where Mr. Ray led teams of lawyers to find the best way out possible for shareholders, creditors and customers alike. Read this profile from Ray’s hometown paper for more.

The ignominious FTX founder, SBF, created still more drama around “will he” or “won’t he” appear for the Committee in recent Twitter banter (1, 2, 3, 4) with Chairwoman Waters. As of this writing, he says he’ll appear -likely by video. Rumors had swirled whether Chairwoman Waters would use her subpoena powers to compel SBF to testify. Complicating matters was SBF’s Bahamian location.

It was only one year ago – almost to the day – that  SBF was throwing bouquets to House Financial Services after a Committee appearance and tweeting, “A huge thanks to @MaxineWaters, @PatrickMcHenry, and the whole House Financial Services Committee for having us today to talk about the future of digital assets. The meeting was productive and I’m really grateful for the engagement and thoughts from policymakers.”

With Chairwoman Waters and Ranking Member Rep. Patrick McHenry’s work on stablecoin legislation waiting in the wings, it would seem tough questions will be prepared for Mr. Bankman-Fried.

Top 10 questioners to watch on HFS:

    1. Chairwoman and Rep. Maxine Waters (D, CA) – She’s been working with Ranking Member Patrick McHenry and the White House on the aforementioned stablecoin legislation. Having been pictured blowing a kiss to former FTX CEO Sam Bankman-Fried (SBF), distance will be the goal. She is not alone across both sides of the aisle. Perhaps, she’ll also clarify exactly what “Part I” means in the hearing’s title, too.
    2. Ranking Member and Rep. Patrick McHenry (R, NC) – The Chair of House Financial Services in the next Congress is going to want to set a tone for his Committee even if it isn’t *his* yet.
    3. Rep. Tom Emmer (R, MN) – The Majority Whip for the next Congress has been a blockchain industry supporter. As a leader, he may rise above the fray in this moment and reiterate his belief in bipartisanship on blockchain legislation.
    4. Rep. Tim Budd (R, NC) – Rep. Budd will be moving to the Senate in January. It’s still unclear if he’ll wind up on Senate Banking, but he’ll want to show his game here.
    5. Rep. Brad Sherman (D, CA) – This hearing would appear to be affirmation of all of his past skepticism on crypto. Expect a victory lap.
    6. Rep. Jake Auchincloss (D, MA) – Vice Chair of the Committee, Rep. Auchincloss stated at Blockchain Association’s Policy Summit in November that he wanted to see more use cases for blockchain technology from the industry. SBF is not what he meant, though. On-shoring blockchain business could be a theme for Rep. Auchincloss.
    7. Rep. Warren Davidson (R, OH) – With his own past crypto legislation efforts across bill such as the Token Taxonomy Act and Digital Taxonomy Act, what’s he thinking now? One of his staffers, Tim Hite, said last month that no momentum has been lost on legislation.
    8. Rep. Ritchie Torres (D, N) – One of the “Blockchain Eight” signers, which was a letter critical of the Securities and Exchange Commission and its Chair Gary Gensler, Rep. Torres may use this time to bang on SEC deficiencies again.
    9. Rep. Trey Hollingswoth (R, IN) – Having introduced the Stablecoin Transparency Act in the House along with Senator Bill Hagerty (R, TN) in the Senate, Rep. Hollingsworth’s experience should inform questions on the inner-workings of crypto and finance.
    10. Rep. Bill Foster (D, IL) – Along with Rep. Emmer, Rep. Foster is among the co-chairs of the Congressional Blockchain Caucus and after successfully defending his seat this fall in Illinois, he’ll be thinking about his next steps in Congress. Does he want to share the blockchain mantle?

Another possible point to drive home by Members may be the difference between blockchain technology’s promise and the “plain vanilla” fraud which has been alleged to occur with FTX – a debacle of centralization versus the ethos of decentralization promoted by many in the blockchain industry.

Hearing #2 – checks the box

Wednesday, December 14, 10:00a – Senate Banking Committee: “Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers” ( Live stream)

“Check.” The Senate Banking Committee will be able to say on Wednesday night that it had its first FTX hearing.

But, Banking’s agenda looks weaker than House Financial Services’ which may be fine with everyone for this first battery of hearings.

Witnesses include:

    • Professor Hilary J. Allen, American University Washington College of Law
    • Mr. Kevin O’Leary, Investor
    • Ms. Jennifer J. Schulp, Director Of Financial Regulation Studies, Center for Monetary and Financial Alternatives, Cato Institute
    • Mr. Ben McKenzie Schenkkan, Actor And Author

Chairman and Senator Sherrod Brown (D, OH), who is known for his skepticism about crypto, has requested that former FTX CEO Bankman-Fried join for this hearing, too. Read the letter. As of this writing, SBF has not agreed.

Mr. Bankman-Fried has given multiple interviews to news outlets such as The New York Times, The Wall Street Journal, The Block and more since his company filed for bankruptcy in November. What’s one more unless he’s worried about further legal jeopardy? His appearance in front of the House Financial Services Committee the day before could chase him back into hiding.

As for the currently listed Senate Banking hearing witnesses, Kevin O’Leary of Shark Tank fame would seem to be in the least enviable position as an advocate of SBF and investor in FTX.  Even last week O’Leary was put in the position of defending SBF.

O’Leary’s previously outspoken views on support of stablecoin legislation for igniting cryptocurrency investment by sovereign wealth funds – read more from last April – could end up being a drag for the industry on future stablecoin efforts.

Industry Snub

With the blockchain industry reeling from the FTX disaster, it should be noted that neither of this week’s two Congressional hearings or Senate Agriculture’s hearing two weeks ago on the Digital Commodity Consumer Protection Act (DCCPA) has asked for input from leading executives at blockchain companies or industry associations.

Apparently no one wants to hear from crypto advocates in Congress right now as Members wipe the FTX “egg” from their faces.

For industry executives, it’s a double-edged sword: they don’t want to be associated with the FTX debacle; on the other hand, they likely want to reiterate their belief that there is more going on in the blockchain industry than corruption.