This week, the collapse of a major cryptocurrency exchange in the nation's capital caught the attention of lawmakers. As they tried to figure out what went wrong, they also faced the growing financial sector's consequences.
Several weeks ago, top Republicans and Democrats were working together with industry experts, including Sam Bankman-Fried, the founder of FTX, to develop new regulations for the cryptocurrency industry.
Since Congress failed to act on the cryptocurrency industry's regulations, it has become a case study about the costs of inaction. It has been revealed that Bankman-Fried made numerous risky bets that caused his wealth to shrink and threatened the investments of other investors. The lawyer who was appointed to lead the restructuring of FTX said that the company's collapse was a failure of corporate controls.
In the US, multiple investigations have been launched into Bankman-Fried's activities. Meanwhile, the Treasury Department asked major cryptocurrency exchanges to assess the potential risks of a potential financial crisis.
Despite the numerous calls for comprehensive legislation, Congress has been unable to pass regulations that would allow the cryptocurrency industry to operate legally. During that time, various crypto firms experienced massive and unexpected rises and collapses.
Since the dot-com bubble and Facebook's privacy issues emerged decades ago, federal policymakers have been slow to recognize the potential risks of the digital age. Unfortunately, after numerous scandals, regulators and lawmakers were forced to act.
The rapid emergence and evolution of cryptocurrencies has presented the most challenging challenge to date. Due to the new financial system that has emerged, the federal government had to choose between implementing strict regulations and keeping up with the tech industry's rapid growth.
The US government has largely followed the latter approach, allowing the rapid emergence and evolution of Bitcoin and other cryptocurrencies. This has also helped boost the valuations of these assets. Until recently, FTX was the world's third-largest exchange.
Unfortunately, the path to success for FTX was not clear. Due to the allegations surrounding its operations, large investors started selling their holdings. This led to the emergence of a chain reaction that affected the start-ups and venture capital firms that were heavily invested in the exchange. Bankman-Fried then filed for bankruptcy last week.
Due to the allegations against FTX, other major cryptocurrency exchanges were also in danger. Their assets were tied up in the fallout.
After taking over as the CEO of FTX, John Jay III noted that he had never seen such a lack of reliable financial information during his career. Despite having overseen the dissolution of Enron, he believed that the FTX collapse was worse than the situation with the energy firm.
The events surrounding the collapse of FTX quickly overshadowed a hearing of the Senate Banking Committee, which was scheduled to focus on credit unions. Patrick Toomey, the state's top Republican, used the situation to highlight the multiple high-profile crypto firm collapses.
According to his financial disclosures, Toomey had previously bought cryptocurrency. However, he used his opening statement to talk about the potential risks of cryptocurrencies. He noted that FTX and other similar firms could run roughshod on the US economy.
The preceding is a summary of an article that originally appeared on The Daily Cable.