Sen. Brown calls for crypto crackdown
As chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, Ohio Democrat Sherrod Brown sounded the alarm on cryptocurrency more than a year before the November meltdown of the FTX cryptocurrency exchange.
“There’s nothing ‘democratic’ or ‘transparent’ about a shady, diffuse network of online funny money,” Brown warned at a July 2021 hearing on the alternative currencies, whose advocates maintain they’re a way to take power back from irresponsible Wall Street bankers who triggered the 2008 global financial crisis.
Cryptocurrencies are not backed by governments, banks or other institutions. Their ownership is tracked through decentralized computer networks based on blockchain technology. There are thousands of types of cryptocurrency, and their values can fluctuate dramatically. Hackers have stolen billions of dollars in the digital funds.
Previously valued at $32 billion, FTX was forced to file for bankruptcy after a run on deposits left it with an $8 billion shortfall, causing huge losses for investors who trusted the exchange with their money. The run was triggered by a report that questioned the stability of an affiliated company,
Alameda Research, whose finances are entwined with FTX.
Brown called the collapse “a loud warning bell that cryptocurrencies can fail, and just like we saw with over-the-counter derivatives that led to a financial crisis,... these failures can have a ripple effect on consumers and other parts of our financial system.”
He has asked Treasury Secretary Janet Yellen and other federal financial regulators to examine how to regulate cryptocurrencies and their role in the U.S. economy.
A letter he wrote to Yellen observes that FTX failed to exercise basic corporate controls or risk management over its operations and improperly relied on its own proprietary crypto tokens, which led to inflated valuations that fueled irresponsible risk taking. Citing a Financial Stability Oversight Council report that found crypto-asset activities could destabilize the U.S. financial system if they grow without regulation, Brown urged Yellen to work with him and other financial regulators to develop comprehensive crypto legislation.
Over the past year, Brown’s committee has held hearings on the risks of stablecoins, cryptocurrency’s role in illicit finance, and the crypto scams and fraud. The regulations he envisions would prioritize the interests of national security and consumers and national over the crypto industry, he says.