regulation

At our TC Sessions: Crypto event last week in Miami, I sat down with Bitwise Asset Management General Counsel and Chief Compliance Officer Katherine Dowling, Perkins Coie Partner Sarah Shtylman and Paradigm Policy Director Justin Slaughter to talk about the crypto regulation landscape, with a specific focus on the U.S. What we didn’t know heading into the panel was just how much would change about the industry owing to the fallout from FTX’s collapse the week prior. Slaughter in particular felt the impacts of the FTX fiasco firsthand: Paradigm wrote down a $278 million investment in the exchange following its declaration of bankruptcy. We talked about that up front, but mostly as a jumping-off point to discuss the knock-on effects for the state of regulation, which was itself already a contentious mess, particularly when it comes to U.S. lawmakers and the various federal regulators involved in the market, including the SEC and the CFTC. The key takeaways that all three panelists essentially agreed upon is that the benefit of the FTX situation is that there’s now more impetus than ever to arrive at some kind of regulatory framework specific to crypto in the U.S., and that there’s now ample demand from the industry side, as well as an opportunity to further educate regulators since they’re looking for illumination coming out of the FTX collapse. On the incentive side, there’s harm reduction, since regulators and lawmakers don’t want more FTX scenarios to continue to unfold, as well as FOMO on the business being done abroad in markets where they’ve raced ahead to encourage crypto adoption. Check out the full panel above for much more.

Crypto trading behemoth FTX fell from grace this week after the exchange experienced a liquidity crunch and agreed to give its rival, Binance, the option to purchase the company’s non-U.S. operations in what appears to be a bailout. Now, U.S. regulators are looking into whether FTX potentially mishandled customer funds on its platform, sources told Bloomberg. In addition to the liquidity crisis itself, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are investigating FTX’s relationship with its sister entity Alameda Research as well as with FTX US. The investigations, which haven’t been publicly disclosed, began “months ago as a probe into FTX US and its crypto-lending activities,” Bloomberg reported. Alameda Research, a crypto trading firm run by FTX chief Sam Bankman-Fried, was caught in the eye of the storm this week when its leaked balance sheet financials revealed unusually close ties with FTX through the exchange’s native FTT token. Changpeng Zhao, Binance’s chief executive, sent shockwaves through the cryptoverse when he Tweeted that his firm, an early investor in FTX and a large holder of its tokens, would be liquidating its position in FTT. Since that series of Tweets, FTT holders have been selling off their tokens in droves. Zhao claims Bankman-Fried then called him, asking Binance to rescue the troubled exchange. Binance and FTX both revealed yesterday that the former had signed a non-binding letter of intent that gives it the option to purchase FTX pending due diligence. At this point, it is unclear whether the deal will go through because of alleged concerns that have arisen during the diligence process.