The FTX hearing by the Senate Committee on Banking, Housing, and Urban Affairs starts shortly. I'll be livetooting it here, and will be publishing a recap of it in my newsletter later.
Hearing stream: https://banking.senate.gov/hearings/crypto-crash-why-the-ftx-bubble-burst-and-the-harm-to-consumers
Newsletter:https://newsletter.mollywhite.net/
I'll use the #FTXhearing hashtag throughout, so feel free to filter it out if I'm clogging your feed or you'd rather catch up later.
Statements by witnesses—Prof. Hilary Allen, Kevin O'Leary, Jennifer J. Schulp, and Ben McKenzie—have already been published at the link above.
Sen. Brown (D-OH) opens with a very critical statement, where he talks about Facebook's Libra project (shut down by gov't.) which he describes as a "shiny tool" to try to extract money from consumers.
"Crypto doesn't get a free pass because it's shiny and bright, or because venture capitalists think it might change the world." – Sen. Brown
Brown urges that this hearing is not just about FTX, but will focus on the crypto industry and consumer protection.
Sen. Toomey (R-PA) says largely the opposite to Brown, and echoes the crypto industry's line that we must separate FTX's wrongdoing from all this promise that supposedly exists in the industry.
"There's nothing intrinsically good or evil about software, it's about what people do with it... Code committed no crime..." – Sen. Toomey
😮💨
Toomey says some Senators have suggested "pausing cryptocurrency" while hearings go on.
The crypto industry clearly has a strong spokesperson and salesman in Senator Toomey.
Sen. Brown introduces the witnesses. Prof. Hilary Allen and Ben McKenzie Schenkkan (better known as Ben McKenzie) will be critical of crypto; Kevin O'Leary and Jennifer Schulp are both pro-crypto.
First up is Prof. Hilary Allen. Her statement is challenging crypto's claims they are decentralized. She has suggested that "a ban on crypto would be the most straightforward".
She says that if legislators are not willing to proceed with a ban, then they must be very careful not to enact laws that would make crypto "too big to fail".
Now Kevin O'Leary is up. He was a paid spokesman of FTX. He's listing his crypto entanglements, and talking them up 🙄
O'Leary echoes Toomey in his statements that Bitcoin "isn't a coin, it's software".
This is a recently popular argument, which seems to seek to lean on "code as speech" precedence.
O'Leary explains how HE will be the one to do the detective work on what happened at FTX.
He characterizes skeptics as "entrenched businesses" who "abhor competition".
Now Jennifer J. Schulp, who's in camp "this is an FTX problem, not a crypto problem". She's talking up defi.
She characterizes various regulatory suggestions from the crypto-critical as "taking technological choices out of people's hands."
"Risk is a natural component of markets, and failure is often necessary for development."
Now Ben McKenzie, who says the crypto industry depends on "misinformation, hype, and, yes, fraud".
McKenzie is outlining how he does not believe that cryptocurrencies are currencies, and how he believes that every cryptocurrency is a security.
Sen. Brown asks if this kind of fraud exists at other crypto firms.
Allen: Yes
O'Leary: Yes, at unregulated exchanges
Schulp: Most likely
McKenzie: It's endemic.
McKenzie outlining the cross-pollination between execs at online gambling and fraud enterprise Ultimate Bets and the crypto industry: Stuart Hoegner at Tether and Dan Friedberg at FTX
O'Leary not great at yes or no questions. He claims the comparison to gambling are outdated and like early comparisons of the stock market to gambling.
Sen. Toomey pushing back on McKenzie's claim that all cryptocurrencies—including Bitcoin—would be securities.
Not surprised there.
He's having Schulp make that argument for him.
The argument, a common one, is that Bitcoin is too decentralized to be classed as a security.
O'Leary outlines the potential for blockchains, saying that 1/3 of the MIT class wants to work in the crypto industry.
Maybe not the best argument given that SBF was an MIT grad...
O'Leary is blaming FTX's collapse on Changpeng Zhao (CZ) of Binance.
@molly0xfff lol - the stock market isn't gambling?
Enjoying these livetoots, thanks for doing this!
@molly0xfff Wait, even the pro-crypto witnesses are saying “yup, fraud all over the industry!”
OK.
Isn't the whole point of crypto to evade regulation and tracking? Beloved of crooks and libertarians alike?
@molly0xfff An unregulated speculative asset store and international exchange?
How can anyone's first thought NOT be "money laundering"?
This is still the best response to claims that it is all a Ponzi scheme.
@MattChambers For those curious about a standard definition of a financial security:
@MattChambers IANAL and am green to much of this (hence the "dumb question" / "standard definition" toot).
That said, from the article: Howey v. SEC (1946) and the Howey Test:
[T]he court found that the plaintiff's sale of land and agricultural services constituted an "investment contract"—even though there was no trace of a stock or bond.
This case established the four-prong Howey Test, which states that an investment can be regulated as a security if:
No contract requirement.
"Efforts of others" might presumably be, say, "enhancing the value of the cryptocurrency ecosystem" (I'm positing language a crypto-advocate might use, not my own), and transactions of others of those assets themselves, creating a putative market capitalisation.
Edit: Markdown glitch, enum. list.
@MattChambers More from Investopedia on the Howey Test:
@MattChambers Also: the four-pronged test itself constitutes the contract, if I'm reading things correctly, based on the above article and follow-up on Howey.
@MattChambers Could well be.
Former SEC chair Jay Clayton agrees with your take FWIW:
In June 2018, the former Chair of the SEC, Jay Clayton, clarified that bitcoin is not a security: "Cryptocurrencies: These are replacements for sovereign currencies, replace the dollar, the euro, the yen with bitcoin. That type of currency is not a security," said Clayton.7
Bitcoin, which has never sought public funds to develop its technology, does not pass the Howey Test used by the SEC to classify securities. However, by Clayton's definition, tokens used in an ICO are securities.
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