The cryptocurrency industry came under criticism from U.S. lawmakers during a meeting of the Senate Committee on Banking, Housing, and Urban Affairs on Tuesday entitled “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets.”

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Fast facts

  • “While crypto contagion didn’t infect the broader financial system, we saw glimpses of the damage it could have done if crypto migrated into the banking system,” said committee chairman Senator Sherrod Brown in his opening remarks, referring to the collapse of Bahamas-based crypto exchange in November.
  • “These crypto catastrophes have exposed what many of us already knew: Digital assets — cryptocurrencies, stablecoins, and investment tokens — are speculative products run by reckless companies that put Americans’ hard-earned money at risk,” he said.
  • The hearing covered topics ranging from stablecoin regulation, consumer protection, and how the Securities and Exchange Commission (SEC) should cooperate with the Commodity Futures Trading Commission to regulate digital assets.
  • Lee Reiners, policy director of the Duke Financial Economics Center, said crypto undermines U.S. national security and no longer bore much resemblance to what Bitcoin’s pseudonymous creator Satoshi Nakamoto envisioned when he developed the technology.
  • Others took a more positive stance, such as Senator J.D. Vance, who warned regulators not to “destroy the dynamic upside of the digital asset world.”
  • Senator Tim Scott appealed to Securities and Exchange Commission (SEC) Chair Gary Gensler to appear before Congress to address enforcement actions by the agency in recent weeks.
  • On Thursday, crypto exchange Kraken shuttered its crypto staking program and paid a US$30 million fine after the SEC said the program violated securities law.
  • Shortly after, Paxos Trust Company stopped minting the Binance USD (BUSD) stablecoin, which has a US$16 billion collateralization, under orders from the New York Department of Financial Services.
  • The hearings also follow calls by the White House to increase efforts to regulate the growing industry, which warned it would be a “grave mistake” to enact legislation that would deepen ties between crypto and traditional finance due to the risk of broader financial contagion in a crisis.

See related article: Hold onto your crypto bags, the regulators are coming