There’s an upside to crypto’s dramatic collapse

IF THERE is a silver lining to the rapid and dramatic collapse of the cryptocurrency exchange FTX, it’s that it might lead to some long-awaited bipartisanship in Congress – to pass longneeded regulation of Big Tech.

FTX filed for bankruptcy on November 11. The company founder and chief executive, 30-year-old Sam Bankman-fried, has stepped down and lawyered up.

This represents a reckoning for cryptocurrency, a market that has gone underregulated for its entire existence.

And FTX’S fall is just the latest, most egregious example in a series of Silicon Valley disasters. From Elon Musk’s destructive takeover of Twitter, to layoffs across the industry, to Ticketmaster’s monopoly on Taylor Swift tickets, the long-inflated tech bubble could well be bursting.

The Post Editorial Board has declared the moment a “big reset for tech”. But Big Tech cannot be allowed to reset itself. The Biden administration has the rare opportunity to regulate it through bipartisan co-operation in a closely divided Congress. Taking on cryptocurrency would be a natural place to start.

While FTX’S downfall may be the first cryptocurrency scandal of this scale, the story is familiar. Allegedly, Bankman-fried loaned $10 billion of his customers’ dollars to his investment company, Alameda Research, and used it for risky day trading.

When consumers lost confidence and tried to pull their money out, they learnt FTX did not have their funds on hand. FTX covered up the misuse from its customers, its auditors and its own employees.

Heard that before? John Ray III has. Ray was the man who oversaw bankruptcy proceedings for Enron. Yet taking over as chief executive of FTX after Bankman-fried’s departure, Ray said: “Never in my career have I seen such a failure of corporate controls.”

If the allegations against Bankman-fried are true, he committed a clear violation of securities law.

That was possible, in part, because FTX is in the Bahamas, and has not been subject to regulation by the SEC.

But the US can protect consumers from crypto’s instability. Last year, China cracked down on crypto trading. Several countries, including Algeria, Bolivia and Pakistan, have banned it entirely or implicitly.

And now, in a rare moment that transcends American political partisanship, legislators of both parties are eager to act.

The Democratic-led House Financial Services Committee has announced an inquiry into FTX, and Bankman-fried could testify soon.

Republican control of the House is unlikely to deter the investigation. Republican Patrick T Mchenry, the committee’s likely next chairperson, said of FTX: “There is no sugar-coating it. The collapse has been a dumpster fire.”

The same co-operative spirit is apparent in the Senate. Democrat senators. Elizabeth Warren and Richard J Durbin have requested documents – and answers – from Bankman-fried, with support from Republican colleagues.

“This is now a front-burner issue,” said Republican senator Cynthia Lummis, who introduced a bill in June with Democrat senator Kirsten Gillibrand that would incorporate digital assets into the government’s regulatory structure.

The push to tackle crypto also coincides with a broader effort from the Biden administration to strengthen our antitrust laws; it is considering two pieces of legislation to prevent Big Tech from stifling competition.

This, too, could be a promising opportunity for co-operation; Republicans have demonstrated willingness to take on Silicon Valley before. But it will require Democrats to overcome their financial ties to the industry.

Big Tech and crypto may be bipartisan targets, but, ultimately, Bankman-fried is a Democratic problem. He was the party’s second-largest donor in the 2022 campaign cycle, spending about $37 million (about R630m). He had spoken about spending up to $1bn on the 2024 presidential election in support of Democrats and progressive causes.

Bold antitrust action and robust crypto regulation will provide financial security and stability for millions of Americans. The only sort of person for whom regulators will make things worse is someone like Bankman-fried.