This piece was originally published in The Hill.
Congress’s frustration with the cryptocurrency industry was on full display last week when the House Financial Services Committee held a hearing to investigate the collapse of FTX. Lawmakers on both sides of the aisle are fed up with fraud and malfeasance among crypto companies, making it all but certain that Congress will take action to regulate the industry next year.
But in the haste to call FTX founder Sam Bankman-Fried to account, Congress should take care to craft legislation that distinguishes bad actors and scams from the promise of continued innovation in blockchain technologies.
Once an industry darling, Bankman-Fried is now being charged with defrauding millions of investors out of billions of dollars. Last month, information came to light indicating that FTX and Alameda Capital—a venture capital firm also founded by Bankman-Fried—were commingling customer funds, leading to a run on the exchange and eventual bankruptcy. In the aftermath of the collapse, court filings and other watchdogs claim that he misappropriated customers’ deposits to make investments, including the purchase of real estate and options trading. Only a fraction of FTX’s assets have been secured by its new management, and millions of creditors are likely to experience a total loss.