Sen. Tester (D-MT) opens with skepticism, asks Allen how her concerns expressed in front of the Senate last year have developed.
She expresses her gratefulness that banking regulators have largely siloed crypto, and limited FTX's explosion from affecting traditional finance.
But she expresses concerns over how crypto and traditional banking are increasingly intermingling, and she says we need to "firm up" the separation between the two.
Allen explains how the subprime mortgage crisis exposure was around $1.3T, and the reduction in the crypto industry "market cap" (which she also expresses skepticism about) was on that order, so if crypto and tradfi had not been segregated, its failure could've been catastrophic.
Sen. Tester asks if, had the two been closely coupled, the government might have had to bail out crypto like it had to bail out banks in 2008. Allen says yes.
O'Leary points to LedgerX as the "only entity that didn't go to zero" in the FTX collapse as proof that proper regulation could have protected FTX investors.
He conveniently ignores the other US-based entities involved the bankruptcy.
Sen. Hagerty (R-TN) is concerned about a "similar implosion by Binance", which he says would be catastrophic for the crypto industry and for consumers. Asks how US regulators could work with global regulators to bring transparency to Binance.
Sen. Hagerty outlines ties he believes exist between Binance and the CCP, seems very concerned about that. Schulp decides to sidestep discussing those ties.
Sen. Warner (D-VA) is up. He's also concerned Binance and possible ties to the CCP.
Talks about the "clunkiness" of Bitcoin, lack of scalability, environmental cost.
Allen says we're sort of partway down the iceberg, points to the earlier Terra/Luna collapse.
McKenzie points out the existence of the "Exchange coordination" signal chat which included both CZ of Binance and SBF of FTX, describes it as an example of centralization in the industry.
McKenzie making sure to raise his concerns about the connections between Alameda and Tether.
Sen. Lummis (R-WY) is up. She's been among of the biggest crypto advocates in the Senate.
"Digital assets are not on trial. Fraud and organizations are on trial. Let's separate digital assets from corrupt organizations."
She namedrops Kraken, Coinbase, and Bitstamp as shining stars of the crypto exchange industry.
Wonder how those donations are looking.
Her first question might as well come from a talking Bitcoin.
Lummis: "Why do digital assets and DLT have the power to make our capital markets safer and more efficient?"
Shamelessly plugs her and Gillibrand's bill, "Responsible Financial Innovation Act", which she says she'll reintroduce next year.
Sen. Warren (D-MA) is up. Hold on to your butts, this is going to be a stark difference from Lummis.
Warren characterizes crypto as a tool for crime. She asks Allen about claims from the crypto industry that blockchains are uniquely transparent. "Does the fact that the blockchain is public mean it is more difficult for criminals to launder money using crypto?"
Allen explains that blockchains are "the worst of both worlds", and enable criminals to launder money while also making it difficult for average people to maintain privacy.
Allen explains that blockchains are "the worst of both worlds", and enable criminals to launder money while also making it difficult for average people to maintain privacy.
Allen explains that the claims that crypto could be more efficient, made by Schulp but also many others, rely on crypto sidestepping regulations on things like anti-money laundering. She describes crypto as "regulatory arbitrage".
Warren asks O'Leary if we should accept weaker KYC/AML in crypto because it is "so promising". He says no.
O'Leary: "I take issue, Senator, with your concept that it makes it easier to do money laundering. Currencies have been used for drug trafficking since the 60s."
wat
Argues that "USD is used for money laundering too". Warren isn't having it, saying yes—that's why the same rules should apply to crypto as to traditional finance.
"No!" - O'Leary
Sen. Van Hollen (D-MD) asks Allen what she would do if she was queen for a day.
Sen. Cortez Masto (D-NV) asks how we would regulate crypto.
O'Leary objects to Allen's suggestion that we ban banks from interacting with crypto, says it would "make US banks the most uncompetitive financial services industry in the world".
O'Leary starts to shill crypto, Cortez Masto cuts him off (thank god)
"If we allow crypto to infect our banking system, we will be back here, and not in a good way." - Ben McKenzie
Cortez Masto asks about the claims that this was an issue of centralization not crypto, asks if defi would've helped.
Allen states that defi is a marketing term, it's not very decentralized.
Allen distinguishes decentralization of networks from decentralization of power and economic decentralization.
Louder for the people in the back!
Sen. Smith (D-MN) characterizes FTX collapse as shocking but not surprising.
Says people should be allowed to invest however they like, but they should be able to trust that the market is fair and have transparency.
Smith outlines externalities of crypto mining, speaking of proof of work mining (used for Bitcoin and some others). Describes energy & pollution impact.
"The technology is bad." - Ben McKenzie
Sen. Sinema (something-AZ) is up now. She's another huge crypto promoter, and is talking up crypto's appeal to those skeptical of governments and centralized control.
Sinema refers to Prof. Allen as "him". Did she just now start listening?
Sinema is challenging Allen's and others statements to "let [crypto] burn", saying they're advocating for burning average retail investors.
🙄
Sinema ostensibly asked Allen a question, but she's just grandstanding.
Sen. Toomey is back and shilling. "We haven't talked as much as we ought to about some of the, I think, really exciting and terrific applications that the crypto ecosystem makes possible".
Sen. Brown talks about "regulatory clarity", asks if crypto platforms could even
comply with regulations if that had the clarity.
Allen says no.
And with that, the hearing is over.
Molly White
Tess Elation