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Silvermint Challenges the Crypto Community to Rise to Our Standards in the Wake of FTX
We have already warned the $32 billion Ponzi collapse of crypto exchange FTX on a liquidity crunch would draw regulatory heat that the industry doesn’t merit, and we weren’t wrong. We recognize that there will be some regulation of crypto, and that the industry needs better clarity and guidance. There are good faith actors in the regulatory and legislative sphere pushing for reasonable regulations that don’t stifle innovation or slow the fast-pace of the tech sector. We believe the industry can work with them.
But as we feared, the sordid FTX collapse is bringing out the worst in Washington and elsewhere, who paint the crypto industry with a broad brush and who are using FTX to push draconian crackdowns.
There can be no doubt that FTX and Sam Bankman-Fried acted maliciously. FTX/SBF rightly face criminal charges for diverting customer and investor funds for his other company Alameda Research, as well as for partisan political donations. And no one is buying SBF supporter claims he had “good intentions.”
“Verified FTX Insider: SBF had good intentions, but things grew too quickly too fast & got out of hand. SBF lost control. SBF started lying, and this led to compulsive lying, backed up by a false sense of altruism that led him to believe his own lies leading to his demise,” Nawfal said.
Responding to Nawfal’s tweet, attorney Deaton described the comment as “absolute nonsense.” Deaton, representing over 75,000 XRP holders in the Ripple vs. SEC lawsuit, said SBF can’t have good intentions after stealing “$10 billion of customers’ funds.”
The Crypto Law founder said SBF was able to gain access to customers’ funds via his acquisition of BlockFi, a crypto lender FTX bailed out with a $250 million loan earlier this year.
“[SBF] gets no benefit because there is zero doubt,” attorney Deaton added.
In Washington, politicians are unsheathing the knives for crypto.
Congressman Brad Sherman, D-Calif., is the latest politician to call for increased regulation of the cryptocurrency market in the wake of FTX's multibillion-dollar downfall.
"The sudden collapse this week of one of the largest cryptocurrency firms in the world has been a dramatic demonstration of both the inherent risks of digital assets and the critical weaknesses in the industry that has grown up around them," Sherman said.
Sherman, who is chairman of the Subcommittee on Investor Protection and Capital Markets, said he supports "the efforts of U.S. regulators and law enforcement to investigate this situation and make sure those responsible are held accountable."
We absolutely agree that SBF and his cabal be held accountable. The fallout from this scam is going to be a drag on crypto for a long time. But Sherman’s call for accountability goes far beyond FTX.
Sherman has advocated for Congress and federal regulators to take an "aggressive approach" in confronting any societal threats posed by cryptocurrencies and plans to examine options for federal legislation in the coming weeks.
“To date, efforts by billionaire crypto bros to deter meaningful legislation by flooding Washington with millions of dollars in campaign contributions and lobbying spending have been effective," Sherman said.
He pointed out the attention given to now-former FTX CEO Sam Bankman-Fried’s political donations to Democrats, as well as Ryan Salame, the co-CEO of Bahamas-based FTX Digital Markets, who has donated over $23 million to Republican candidates and campaign groups in 2022.
"When you examine FTX efforts to influence Washington, you have to look at both CEOs, not just the eccentric guy wearing the shorts," Sherman concluded.
With the Senate remaining in Democrat hands, that means Senate Banking Committee Chairman Sherrod Brown, D-Ohio, will remain head of the banking committee. He is no ally of the industry.
Lawmakers on both sides of the aisle have signaled they want to pass new laws to regulate digital assets, particularly after this summer’s market crash and this week's implosion of FTX, culminating in the exchange's bankruptcy on Nov. 11.
"It is crucial that our financial watchdogs look into what led to FTX’s collapse so we can fully understand the misconduct and abuses that took place. I will continue to work with them to hold bad actors in crypto markets accountable," Senate Banking Committee Chairman Sherrod Brown, D-Ohio, said in a statement. If the Nevada result holds then Brown, a financial regulatory hawk, will continue to hold his Banking Committee gavel, barring a broader, unexpected reshuffle in committee leadership.
That sounds more reasonable than Sherman’s approach in the House. And we believe the bipartisan Lummis-Gillibrand Responsible Financial Innovation Act gets a fair hearing in the Senate. We don’t agree with everything in it, but it’s a starting point.
At least Senate lawmakers in the US aren’t reacting to the FTX debacle like the European Central Bankers, which called crypto asset providers “animals.”
The head of financial supervision at the European Central Bank (ECB) intimated crypto regulators based in Europe against crypto asset providers while calling them a threat to consumer protection. According to the ECB, crypto asset providers “never think about financial risks” and neither do they respect national borders.
ECB’s supervisory board chair, Andrea Enria, vocally shared:
“I am concerned for my colleagues that will have to perform this supervision in the future because these are animals with whom it is difficult to engage.”
The story is far from over when it comes to FTX, as firms with exposure to the exchange and related entities are reeling from the aftershock. There will be knock-on effects that put more and more crypto names out of business. Exchanges in particular are at risk and suspect regarding their liquidity.
SBF, co-founder Gary Wang, Alameda Research CEO Caroline Ellison, and other key execs “under supervision” in the Bahamas, reportedly looking for a way to flee to Dubai. We hope they get everything coming to them.
The problem our industry and our peers face is to overcome the shadow these scammers cast on crypto. It’s incumbent on the industry to push back against the regulatory pendulum, but even more important to adopt and adhere to higher standards of disclosure and transparency. That’s our commitment at Silvermint, and we’ve put it on the record. We challenge the rest of the industry to rise to our standards.