Two New Crypto Regulation Bills That Make Sense

We’re going to be skeptical of any regulatory bills coming hot on the heels of the FTX collapse, but at first blush two new measures introduced this week focused on customer protection don’t look objectionable. About the only thing really objectionable is that because of bad actors like FTX, such rules are necessary.

The first would prohibit the misuse of customer deposits by crypto exchanges, while the second would require exchanges to disclose proof of reserves to the US Securities and Exchange Commission.

The specific language of H.R. 9241 is “A cryptocurrency exchange may not lend, leverage, or co-mingle the funds of a customer without the consent of such customer.”

The language of the second bill, H.R. 9242, says, “A cryptocurrency exchange that holds assets on behalf of customers shall periodically (as determined by the Securities and Exchange Commission) disclose to the Securities and Exchange Commission information relating to proof of reserves of the exchange, including, with respect to the exchange at the time of the disclosure, the amount of assets held by the exchange compared to the liabilities of the exchange.”

That’s the extent of the language in the bills. This is remarkably terse and doesn’t leave any room for hidden mechanisms. The two bills now go to the House Financial Services Committee.

“Crypto has a place in the American economy, but it must be carefully regulated,” said the bills’ author, US Rep. Ritchie Torres, D-NY,  said at a press conference announcing the bills. Torres is considered a crypto advocate by many in the industry. He wrote an editorial making the “liberal case” for crypto in the New York Daily News. 

“Sam Bankman-Fried is not representative of crypto finance any more than Bernie Madoff is representative of traditional finance,” Torres said at the press conference.