Binance-FTX Deal Will Bring Regulatory 'Scrutiny’ on Crypto Exchanges: Blockchain Association’s Kristin Smith
The executive director discusses why FTX’s fall from grace is likely to “open up a more robust” debate surrounding regulation for exchanges in future. U.S. Rep. Jim Himes of Connecticut weighs in.
The FTX crypto exchange’s fall from grace could be the catalyst that spurs the U.S. Congress to act on passing more stringent regulation, said Kristin Smith, executive director of the Blockchain Association.
Smith told CoinDesk TV on Wednesday that “lawmakers are very much paying attention” to what happens next with the FTX exchange founded by Sam Bankman-Fried. A CoinDesk scoop revealed the exchange’s corporate sibling, Alameda Research, had substantial amounts of FTT tokens (FTX’s native token) on its balance sheet. The rival Binance exchange started selling its holdings of FTX's tokens. That sparked a panic that has led to a proposed Binance takeover of most of FTX's operations.
“It’s going to invite a lot of scrutiny into how centralized exchanges should be regulated,” Smith said during an appearance on CoinDesk TV’s “First Mover.” However, she added, “what happened with FTX may not be able to be addressed by U.S. regulation” because units Binance.US and FTX.US are “not part of this deal.”
Still, if the deal were to happen (though it now appears unlikely), it would mean Binance would dominate upwards of 80% of the global crypto market, raising anti-trust concerns of a foreign-based company owning an exchange with a substantial amount of U.S. retail users.
Smith said FTX’s unsteady future only highlights what has been seen in the past. “Congress is very interested” in finding a way to “regulate the spot markets” by having exchanges register with the Commodities Futures trading Commission (CFTC) or the Securities and Exchange Commission (SEC), she said.
“As part of that, you could have some sort of proof of reserves and guidelines around what you’re supposed to do with customer deposits,” Smith said, referring to the idea that when users place their crypto on an exchange “there’s an expectation … that it’s not being taken and lent out.”
“This is going to open up a more robust debate around exchange regulation,” Smith said.
Smith’s views on regulations were echoed by Rep. Jim Himes (D-Conn.), who was reelected to Congress in Tuesday's elections. Himes told CoinDesk TV that one thing is clear: The government needs to speed up its work on establishing a clear regulatory playing field.
Himes noted, as did Smith, that the acquisition of an exchange with a substantial number of U.S. retailer users by a foreign player raises antitrust concerns.
“Whenever there's a question of Chinese investment in a technologically innovative business, a lot of antennas go up,” said Himes, who was a former banker during the late 1990s. (Binance CEO Changpeng Zhao is Chinese.)
Despite crypto playing almost “no role” in how Americans voted, Himes said that “there are plenty of Republicans [and] Democrats who are excited to put forward a regulatory framework that will create a lot of certainty.”
He added that as the FTX-Binance debacle unravels, “Investors in this [crypto] space need to understand that it is an immature and volatile market and they need to be careful.”
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.