How Crypto’s Meltdown Changed the Regulatory Debate

It’s harder to argue that your parents should leave you alone when you’ve just smashed up the car. As digital assets lost more than $2 trillion in value and a string of prominent ventures blew up in 2022, most notably the FTX exchange, the debate over cryptocurrency regulation shifted sharply. The turmoil also heightened the stakes in a battle that had already been brewing in Congress over which of the nation’s top market regulators, the Securities and Exchange Commission or the Commodity Futures Trading Commission, should take the lead on crypto oversight. Separately, the SEC has made clear that it considers most digital assets to be securities, a designation that brings with it an extensive set of requirements, while the top US banking regulators issued asweeping statement on the dangers of crypto.

The collapse of FTX and the charges of criminal fraud filed against its co-founder, Sam Bankman-Fried, led to widespread embarrassment in Congress and among regulators. He and several other top FTX executives had donated heavily to the campaigns of Democrats and Republicans and taken a leading role in an effort to craft a new regulatory regime that reflected the priorities of some in the crypto community. While regulators pointed to the fact that crypto’s woes had not destabilized traditional financial markets, they faced criticism for not having taken actions to head off the industry’s worst abuses.