Wishful Thinking? Regulating Crypto To Bring Offshore Onshore

Onshore Offshore

Amidst the most recent crypto cataclysm, hopeful narratives have emerged suggesting that the U.S. government and other jurisdictions could have prevented the implosion of offshore firms such as FTX.

The argument offers two similar threads related to regulatory guardrails:

    • Stay in the U.S. instead of leave: Better crypto-specific regulation in the United States would have encouraged companies to stay local and therefore discouraged unregulated development elsewhere to “infect” unsuspecting U.S. consumers.
    • Grow in the U.S. instead of nothing: Clear regulation in the U.S. presumably grows the crypto industry by inspiring entrepreneurship in the United States. Lack of clarity does not promote risk-taking for which U.S. entrepreneurship is known.

FTX’s international unit presumably would not be experiencing bankruptcy today if it was required to adhere to current United States banking laws let alone anything crypto-specific that may bubble up someday. Of course, a CFO might have helped, too.

It’s fair to ask, would FTX’s founders ever founded anything in the U.S.? Were they only interested in exploiting unregulated environments? Maybe so. And so… does that need to be “onshored”? Doesn’t seem like it.

The European Union (EU) is thinking about how to take a crack at regulating offshore entities but is still far from pulling the trigger. The European Securities and Markets Authority (ESMA) will be on the hook in the EU once Markets in Crypto-Assets (MiCA) regulation takes effect in 2024 or thereafter.

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Centralization Villain Gets More Hearings While Decentralization Watches

Hearings on FTX

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:
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Where Are We: SBF on Wednesday, Senate Ag Committee on FTX This Thursday

Where Are We for Monday, November 28, 2022

As the United States comes spinning out of the Thanksgiving holiday, the fallout from crypto exchange FTX’s implosion continues and another week of drama unfolds for the blockchain technology industry in D.C. and elsewhere.

Where we are….

SBF to speak on Wednesday

The NY Times Dealbook Summit, which is guided by DealBook reporter and CNBC anchor Andrew Ross Sorkin, will include – incredibly – a “live” interview with Sam Bankman-Fried (SBF). The FTX founder announced in a tweet that he’ll be speaking on Wednesday -via video from the Bahamas.

Bankman-Fried’s appearance will come in the wake of last week’s FTX bankruptcy hearing where new CEO John Jay Ray III said that “the mess at FTX was the worst he had seen in his career,” and that included the bankruptcy of notorious energy, trading and services company Enron says The New York Times.

Meanwhile, SBF published a note on an internal FTX Slack channel suggesting that he reluctantly caved into “coordinated” pressure to file for bankruptcy.

Thursday: Senate Ag hearing

On Thursday, December 1 at 10 a.m., the first hearing on the FTX debacle will begin on Capitol Hill courtesy of the Senate Agriculture Committee. Watch the live video of “Why Congress Needs To Act: Lessons Learned From The FTX Collapse” here.

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Staffers See Stablecoin Legislation And DCCPA in 2023

Staffers speak

A swirl of several hundred government relations executives and general counsels from crypto companies around the globe gathered at the Conrad Hotel this week for Blockchain Association’s first annual Policy Summit.

Even amidst the recent implosion of crypto exchange FTX, an agenda sprinkled with an impressive list of elected officials offered hope to a beleaguered audience that could be justified for wanting to update their LinkedIn profile in the past week.

In a panel titled, “Post Midterms Political Outlook: What’s On Deck for the Next Congress?,” Congressional staffers who drive policy discussion on Capitol Hill, provided a behind-the-scenes look at a range of blockchain-related issues facing Congress.

Participants reflected the bipartisan strategy of crypto policy in the House and Senate today with two Democratic and two Republican staffers – who stressed they spoke for themselves and not Members of Congress:

    • Francesco Castella, Senior Policy Advisor for Congressman Ted Budd (R, NC). Rep. Budd, a member of the House Financial Services Committee and the Blockchain Caucus, will be moving to the Senate in the next Congress. Mr. Castella appeared at DeFiCon (https://blockchaintipsheet.com/policy/us-house-staffers-blockchain-cryptocurrency/) in August in New York City.
    • Rashan A. Colbert, Legislative Assistant for Senator Cory Booker (D, NJ). Sen. Booker, who sits on the Senate Agriculture committee, is co-sponsoring the Digital Commodity Consumer Protection Act (DCCPA). Mr. Colbert appeared in a CFTC financial inclusion webcast about blockchain technology in August.
    • Emily German, Subcommittee Staff Director at U.S. House of Representatives Committee on Agriculture, which has jurisdiction over the Commodity Futures Trading Commission (CFTC). Ms. German serves the interests of Democrats on the House Ag Committee and its Chairman, Rep. David Scott (D, GA).
    • Tim Hite, Financial Services Counsel for Congressman Warren Davidson (R, OH). Rep. Davidson has been an active Member when it comes to cryptocurrency legislation (such as the Digital Taxonomy Act and Token Taxonomy Act) which includes his participation in the House Financial Services Committee and the Blockchain Caucus.

Ron Hammond, Director of Government Relations at Blockchain Association and a former staffer for Rep. Davidson, moderated the discussion.

FTX fallout for this Congress

With FTX’s imploding looming over the conference, Hammond didn’t waste any time by asking staff members about the FTX elephant-in-the-room particularly as it related to DCCPA and where FTX and its founder/CEO Sam Bankman-Fried had taken an active, aggressive role in lobbying efforts.

Just prior to the panel, the House Financial Services Committee announced it would convene a hearing about FTX in December.

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