Star-studded Senate hearing illustrates massive divide over crypto in D.C.

After a week-long media circus culminating in the Sam Bankman-Fried film arrest mondayThe Senate Banking Committee held a silent hearing on Wednesday, calling four expert witnesses representing opposite sides of the crypto-skeptic spectrum.

Last week, Chairman Sherrod Brown (D-Ohio) and Ranking Member Pat Toomey (R-Penn.) invited Bankman-Fried to testify under subpoena threat. After he refused, Brown and Toomey released a statement that the disgraced crypto founder’s lawyers were “unwilling to accept the service of a subpoena” with their client still in the Bahamas. After his arrest on Monday, the drama lost relevance.

Instead, the Senate Banking Committee invited four witnesses, an odd pair of two academics and two TV stars, boss veteran Ben McKenzie and shark tank host Kevin O’Leary.

Unlike Tuesday’s hearing in front of the House Financial Services Committee, where FTX acting CEO John Ray III testified, the Senate Banking Committee was less interested in diagnosing the exchange’s collapse and more focused on the crypto ecosystem in the future.

As Brown said during his opening remarks, the audience was “bigger than one person or one company, and that’s the point.”

TV stars and political pundits

The Banking Committee was divided on the potential threats posed by cryptocurrencies and what lawmakers should do about it, which was reflected in the witness list.

McKenzie has branched out from his Hollywood resume to become one of the most prominent crypto critics, initially criticizing other celebrities for shillings shitcoins and since he delved into the weeds of the ecosystem, including travel to el salvador to detail their failures in adopting Bitcoin as legal tender.

His counterpart, Hilary J. Allen, is a professor of law at American University and another vocal critic, urging lawmakers in her opening remarks to ensure that any cryptocurrency regulation is not “too big to fail.”

On the other side was Kevin O’Leary, the celebrity investor and promoter of cryptocurrencies. As O’Leary detailed in his testimony, he had a close relationship with FTX, received $15 million to serve as a spokesperson, and invested $1 million of his own money in the exchange, which he has now “zeroed out.” “.

In a notable moment, he said he spoke to Bankman-Fried after the crash, and Bankman-Fried convinced him that FTX’s bankruptcy occurred at the hands of his rival, Binance. Bankman-Fried spent as much as $3 billion buying back FTX shares owned by Binance, which O’Leary says wiped out his balance sheet.

Despite apparently blaming Binance and not any fraud committed by FTX, O’Leary said Fortune after the hearing that he expects more details to come out in the coming weeks about FTX’s accounting failures.

O’Leary was joined by Jennifer Schulp, the free-market-minded director of financial regulation studies at the Cato Institute, who similarly touted cryptocurrencies, and specifically DeFi, as a necessary innovation.

“Risk is a natural component of markets,” he said in his opening remarks. “Failure is often necessary for development.”

A divided committee

The 24-member committee used the witnesses as foils, asking each one questions that seemed to support their own views on cryptocurrencies. The split started at the top, with Brown more skeptical and Toomey advocating regulation to ensure cryptocurrencies can thrive on US soil.

“Code did not commit any crime,” Toomey said during his opening remarks. “Unless draconian and authoritarian policies are enacted, cryptocurrency cannot be stopped.”

Brown and Toomey have called for different approaches to regulation, and Fortune he caught up with each after the hearing. Toomey, who will retire after this session, has called for several cryptographic provisions to be added to the “omnibus” spending bill. He said Fortune that the most ambitious, a stablecoin bill with Sens. Kirsten Gillibrand (DN.Y.) and Cynthia Lummis (R-Wyo.), was a “long shot,” but he said two others, a “de minimis” exception and a correction to the definition of “runners”—were still possible.

While Brown has called for comprehensive regulation, which he reiterated in a letter Treasury Secretary Yellin after the collapse of FTX; it is not clear what type of legislation he would support.

“It’s going to be hard to get anything past it,” he said. Fortune after the hearing, adding that his priority was to empower the Securities and Exchange Commission to step up and “do its job.” Most cryptocurrency supporters are critical of the SEC and instead prefer legislation that expands the supervision and financing of the Commodity Futures Trading Commission to oversee the sector.

Sen. Elizabeth Warren (D-Mass.) arrived late for the hearing and used her time to ask questions about the endemic money laundering risks of cryptocurrency, the subject of a invoice which she also proposed on Wednesday.

Warren asked Allen, the law professor, about the ability to mask transactions using blockchain technology, to which Allen agreed, describing cryptocurrencies as a “privacy nightmare” for ordinary people and a boon for criminals. .

As we head into the next session of Congress, all legislators seem to agree on the need for regulation; the only question is how it could be.

At the end of the hearing, Brown asked if crypto companies could comply with existing laws.

Allen said they couldn’t, adding that’s why the industry calls for “tailor-made” regulations.

“Good answer,” Brown replied.

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