If you’ve been holding your breath for a dramatic shift in the public response to crypto, seek medical attention immediately. It’s been three weeks since crypto exchange FTX melted down. But as events of the past day have made clear, the post-collapse landscape bears an eerie resemblance to the pre-collapse landscape. Late yesterday, the ousted FTX CEO beamed in via video to a New York Times conference to paint the collapse as the result of honest mistakes and offer suggestions to regulators. Afterwards, the audience clapped. Also yesterday, investor Bill Ackman publicly proclaimed his faith in Sam Bankman-Friend’s trustworthiness, and some prominent financial commentators continued invoking FTX’s name to praise the soundness of the regulatory status quo . This morning, Bankman-Fried took his apology tour to “Good Morning America” while the Senate Agriculture Committee convened a hearing titled, “Why Congress Needs to Act: Lessons Learned from the FTX Collapse.” For several participants, the main lesson was the importance of proceeding with a Bankman-Fried-backed bill that would beef up the Commodity Futures Trading Commission’s authority over crypto. CFTC Chair Rostin Behnam held up the continued solvency of one CFTC-regulated on-shore entity, FTX US Derivatives, as a testament to the value of his agency’s oversight, and a reason to move ahead with the legislation despite its association with the failed exchange. The hearing did yield some other possible lessons . Behnam suggested taking a breather for a few weeks to take a “fresh look” at the pending Digital Commodities Consumer Protection Act. He also suggested tweaking it to strengthen provisions related to disclosures and conflicts of interest. But, as the events of the last day have underscored, several factions appear to be, if anything, more dug in than they were a month ago. The backers of the Senate Ag bill are saying passage of their legislation has become more urgent. The Senate’s crypto critics are condemning the industry in language that is more colorful. Crypto purists are more sure that crypto’s real problem is contamination with practices from traditional finance. And SEC Chairman Gary Gensler’s critics are more angry at him. So, why has so little changed since last month’s spectacular collapse? For one thing, it’s still early. More smoke will have to clear from the wreckage of FTX before any consensus has a chance to form. While a general picture of reckless management and self-dealing has emerged, many details about the collapse remain unknown, or at least unconfirmed. It’s not yet clear how the bankruptcy will play out, and just how badly customers will get stiffed. For U.S. regulators, one major unknown relates to the FTX US retail crypto exchange. Its customer funds appear to remain frozen, even as Bankman-Fried, who no longer controls the company, maintains that the U.S. exchange should be fully solvent and the funds should be available. The ultimate fate of those funds will shed more light on the adequacy of U.S. rules. In the meantime, Bankman-Fried’s unorthodox decision to keep himself in the limelight has contributed to an air of suspended reality. His detractors are convinced he will end up in an orange jumpsuit, but for now he’s still appearing on television in a rumpled t-shirt, offering advice about how to regulate crypto. For another, crypto was already a polarizing technology with a dodgy reputation. The FTX collapse underscored the risks of crypto investing and the prudence of keeping the rest of the financial system insulated from the industry, at least in its current form. Then again, so did the last wave of crypto meltdowns this spring. For some, Bankman-Fried briefly represented the legitimate face of crypto, and a sign that the industry was ready for prime-time. But plenty of people held strong views about crypto that remain unaffected by the collapse of one more shoddy business. And it matters who got hurt. A lot of people lost access to their life savings when FTX collapsed, but not a lot of them are American grandmothers. From the perspective of U.S. regulators and the American public, that matters. Given crypto investing’s reputation as a high-risk endeavor, the attitude of some commentators has been to shrug — note that the industry is not taking global markets down with it — and say, yeah that’s about right. In rich countries, crypto investing is often seen as a form of gambling. Besides, most FTX customers were foreigners using an off-shore exchange. In some poorer parts of the world, on the other hand, people use crypto as a financial lifeline. In parts of West Africa with high inflation, FTX promoted itself to customers who used it to shelter their savings in dollar-pegged stablecoins. Bankman-Fried has not yet appeared before them to explain himself, and if he does, they might not applaud.
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