Sherrod, a Democrat from Ohio, was chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs. Sherrod sounded the alarm about crypto more than one year before November’s collapse of the FTX cryptocurrency platform.
Brown warned at a July 2020 hearing about alternative currencies that there was nothing transparent or democratic about a network of shady online funny money. These alternatives are believed to be a way to overthrow the irresponsible Wall Street bankers who caused the 2008 global financial crisis.
These cryptocurrencies do not come with the backing of governments, banks, or any other institution. A decentralized computer network based on blockchain technology can be used to track ownership. There are thousands of cryptocurrency types and their values may fluctuate significantly. Hackers steal billions of dollars in digital funds.
FTX had a previous value of $32 billion. It was forced to file for bankruptcy after a run on deposits left it with an $8 billion shortfall. This caused huge losses for investors who had trusted the exchange with their money. The report, which questioned the stability of Alameda Research, a related company, triggered panic. Alameda Research is closely tied to FTX.
Brown described the collapse of cryptocurrencies as “a loud alarm bell that cryptocurrencies might fail, and just as we experienced with over-the–counter derivatives that led us to a crisis financial system, these failures could have a ripple effect on consumers, other parts of our financial system, and so he has asked Janet Yellen (Treasury Secretary) to study how to regulate cryptocurrencies in the U.S. and their role within the economy.
His letter to Yellen explains how FTX failed in basic corporate controls and its risk management. FTX also relied too heavily on its proprietary tokens, leading to excessive valuations which fueled reckless risk-taking. Brown urged Yellen along with other financial regulators to create comprehensive crypto legislation. He cited a Financial Stability Oversight Council review that concluded crypto-assets can destabilize the U.S. banking system if they grow in an unregulated manner.
Brown’s committee conducted hearings last year on the potential dangers of stable coins. Also, cryptocurrency’s role in illicit financing. And crypto scams, fraud. According to Brown’s vision, the regulations would be more focused on national security and consumers than the crypto industry.
Brown claimed that crypto firms and their supporters argued that billions of dollars should be exempted from basic oversight and regulatory protections. “That’s how regulation works. Regulation must be done for products that behave or look like commodities, securities, or banks.
He stated that banning cryptocurrency in the weekend following the hearing would be possible but very difficult due to its offshore nature and who knows how it will work.
Open Secrets, a nonprofit organization that tracks money in politics, has tabulated that FTX founder Sam Bankman and his top officers contributed to the federal election campaign with more than $70,000,000. Bankman Fried said he gave an equal amount to Republicans and Democrats, telling a reporter that to avoid negative media attention, he gave all of his money to Republicans via “dark cash” groups, which don’t need disclosure. FEC records aren’t clear that any money was sent to Brown and his America Works political action committee.
Brown claimed in an interview that cryptocurrency has cost investors big money in Ohio and elsewhere.
Brown stated, “People kind of unknowingly entered this not trusting banking system, but there is nothing in crypto that protects them.”
Brown warned that cryptocurrency is not only missing basic investor protections and oversight, but it also poses a risk to national security.
Brown stated, “We have seen crypto money launderers, gunrunners and drug traffickers, and rogue governments inventing new methods to hide and move cash.” While the implosion of FTX is a warning, it’s not only about FTX. It’s a potential issue across the whole industry that can damage the economy. Not just investors, but also the economy. We must ensure that it doesn’t.
Brown stated that U.S. banks are “the envy of the globe” because they protect Americans’ money, not despite it.
Brown says that the words “innovation” or “opportunity” don’t mean anything if they are at the expense of fraud. “New ways that people can cheat their money is not what people want in the economy.”
Author
Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.
