At the Senate Banking Committee hearing about the collapse of FTX, United States Senator Pat Toomey spoke this week. He explained that the illegal actions of FTX must be distinguished “from perfectly legal and innovative cryptocurrencies.”
Senator Pat Toomey (Republican from Pennsylvania) stressed that “the collapse of FTX does not indict crypto,” and that “cryptocurrency can’t be stopped” and that “cryptocurrency would simply migrate offshore” if Congress attempted to do something untoward to the industry. Toomey described the events as follows:
Illegal lending of customer assets to an affiliate entity was done. Fraudulent promises were made to customers and investors about FTX’s operations. These are completely unacceptable and outrageous.
He also stressed:
I want to emphasize a larger issue: The wrongful behavior that occurred here isn’t limited to the underlying asset. This is an apparent breakdown in the management of these assets.
Senator Toomey made an important statement that Congress and regulators should remember:
Cryptocurrencies can be described as software. We should all remember that the code did not commit any crime. FTX is not the same as cryptocurrencies. FTX was opaque and centralized, and it was dishonest. Cryptocurrencies can be open-source, decentralized and transparent.
The fallout of FTX does not justify a ban on crypto
Toomey also addressed the suggestions that sat crypto should not be allowed to continue:
If you think this episode is enough to ban crypto, I would ask you to consider several other examples. The misuse of mortgage products was a major factor in the 2008 financial crisis. Did we ban mortgages? No. Former New Jersey Senator John Corzine ran a commodity brokerage firm that collapsed after customers funds, including U.S. Dollars, were misappropriated to cover trading losses. Nobody suggested that the U.S. Dollar was the problem and that we should ban it. The problem with FTX is not the instruments used. The problem was the misuse and gross mismanagement of customer funds, as well as possible illegal behaviour.
His colleagues, who suggested that crypto should be paused prior to addressing it, had the following to say.
Some of my colleagues suggested that we stop mining cryptocurrencies before we can address the issue. This is a profoundly flawed and impossible suggestion. Cryptocurrency cannot be stopped unless authoritarian, draconian policies are enacted. We could not stop cryptocurrency from moving offshore if we tried.
He also stated:
Is it possible to halt crypto-related activity by putting on hold our Constitution? This is precisely the mindset that drove this activity to less-regulated and dark parts of the globe.
Would it be wise for Congress not to regulate the industry?
Toomey also stated in his statements:
Others suggested that we not address cryptocurrency at all to prevent it from being legitimized. This is not only irresponsible, but also misguided.
He stressed:
Using cryptocurrencies can also empower individuals. They can protect against inflation if governments are not responsible with their currencies. They can provide useful services, without the need of a company or intermediary. They can also allow individuals to keep their privacy.
Disclaimer: This article is intended for informational purposes only. This article is not intended to be used for legal, tax, investment or financial advice.
