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Crypto: FTX collapse to come under Washington spotlight as hearing planned; Yellen calls for better crypto oversight

The implosion of crypto exchange FTX is about to come in for more scrutiny in Washington, with a key House committee announcing a hearing and Treasury Secretary Janet Yellen saying more effective industry oversight is needed.

The exchange has sought bankruptcy protection, and its CEO and founder has resigned, in moves that sent shocks through the crypto industry.

Lawmakers and the Biden administration are calling for a closer look at FTX specifically and for better oversight of crypto markets in general.

On Wednesday, House Financial Services Committee Chair Maxine Waters, a California Democrat, and the panel’s top Republican, Rep. Patrick McHenry of North Carolina, announced in a statement that they plan to hold a hearing in December focused on “the collapse of FTX and the broader consequences for the digital asset ecosystem.”

The statement said the committee “expects to hear from the companies and individuals involved, including Sam Bankman-Fried, Alameda Research, Binance, FTX, and related entities, among others.” Bankman-Fried was CEO of FTX before his resignation.

Also on Wednesday, Yellen said in a statement: “The recent failure of a major cryptocurrency exchange and the unfortunate impact that has resulted for holders and investors of crypto assets demonstrate the need for more effective oversight of cryptocurrency markets.” She did not mention FTX by name but had made similar comments about the company last week to Bloomberg News.

Congress and the federal government must “move quickly to fill the regulatory gaps the Biden Administration has identified” where existing rules don’t offer enough investor protection, she said.

Yellen noted that the administration has identified risks including “comingling of customer assets, lack of transparency, and conflicts of interest,” and said they “were at the center of the crypto market stresses observed over the past week.”

Democrats held the Senate in the midterm elections, but Republicans appear poised to gain control of the House of Representatives, blurring the outlook for near-term crypto legislation.

At a Tuesday hearing, Sen. Pat Toomey, a Pennsylvania Republican who is retiring from his seat at the end of the term, said FTX’s collapse wasn’t caused by the type of assets the firm held but by how the company used them, suggesting that the crypto exchange’s failure isn’t an indictment of digital assets.  

Also read: ‘It feels very much like the Wild West.’ Crypto hedge funds linked to FTX fallout may struggle to recover lost assets, say managers

Related: Why do people invest in crypto? ‘It’s partly fraud and partly delusion,’ says Charlie Munger.

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