Mr. Wonderful Goes to Washington
The Senate Banking Committee convened today for a hearing titled "Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers." I have posted a link to the full video replay at the bottom of this post. It's over two hours long and contains a lot of different perspectives.
Witnesses included:
Prof Hilary Allen, American University Washington College of Law
Kevin O'Leary, Investor
Jennifer Schulp, Director of Financial Regulation Studies, Center for Monetary and Financial Alternatives, Cato Institute
Ben Schenkkan, Actor & Author
I would like to focus on "Mr. Wonderful," the Shark Tank guy as you may know him, Kevin O'Leary. Obviously, this hearing was scheduled in the aftermath of the collapse of FTX.
O'Leary himself was originally not a believer in the crypto-space, until 2021. In May, he disclosed that he had made a small allocation to Bitcoin. Later that year, he entered into an agreement with FTX to be a paid spokesperson. He was paid $15 million for that role, plus an addition $3 million to cover a portion of taxes due. Of that money, he invested $1 million in FTX equity and $10 million in tokens held in FTX wallets. O'Leary acknowledged that said money is now gone, stating he has "written them off to zero."
He went on to discuss the need to get to the bottom of exactly what happened at FTX, but spent the other half of his testimony defending crypto and speaking of its potential. This quote from his prepared remarks stuck out to me in particular:
Crypto, blockchain technology and digital payment systems will be the twelfth sector of the S&P within a decade.
Obviously, as a holder of various cryptocurrencies and stakeholder in WonderFi/BitBuy and Circle, it makes sense that he would make such a bullish statement.
It is important to distinguish, I believe, what happened with FTX from cryptocurrencies in general. The collapse of FTX was not a function of the crypto market, but rather mismanagement and poor leadership. The diversion of customer funds by SBF was the fault of the company: not Bitcoin, not Ethereum, not any coin. FTX was a centralized exchange, with improper oversight. So what does Mr. Wonderful suggest, to prevent another FTX?
We need clear policy and regulation for the crypto industry, its entrepreneurs, its developers and its users. Congress should start by passing bipartisan
legislation that creates a sensible regulatory framework for digital stablecoins backed by the U.S. dollar. Why? A well-regulated stablecoin backed by the U.S. dollar and other high quality, liquid assets could become the global default payment system over time.
U.S. lawmakers are quite divided on the issue. There seem to be two schools of thought on what to do regarding cryptocurrencies:
1) Do nothing, as crypto is an overvalued fad; passing regulations will only legitimize the space and encourage more investment.
2) Increase regulation, in order to protect investors and hold exchanges to strict standards
Something needs to happen. The can has been kicked down the road for too long. What happened at FTX, from all indications, was fraud. Exchanges need to be held to strict standards, so that another FTX doesn't happen. To lump cryptocurrencies in general with FTX as fraud is just misinformed. Think of how many companies, publicly traded on US stock exchanges, have been called out and proven to be fraudulent. Does that mean all stocks are a farce? No.
Kevin O'Leary himself once called Bitcoin "worthless," perhaps certain politicians just need to do some more research themselves too.