Empty hallway outside the Senate Chamber at the U.S. Capitol, April 29, 2020
Photo: Drew Angerer/Getty Images

FTX will supercharge regulatory talk, but the battles are just starting

Protocol Policy

Hello, and welcome to Protocol Policy! Today I’m thinking about how quickly things can become nasty in Washington, D.C. — and whether Sam Bankman-Fried’s dealings could accelerate that. Plus, the next Congress is coming into focus, Taiwan tensions are on everyone’s mind at the G20, and Elon Musk thinks he makes the right amount of money.

Before and after

FTX’s sudden, stunning collapse amid allegations that former CEO Sam Bankman-Fried was secretly siphoning off customer money is dragging down the industry and creating louder calls for regulation of the crypto industry. Still, Democratic control of the Senate, and a likely Republican but closely divided House, means that the battles over what regulation will look like are likely going to get more heated than the industry expected just a week ago. It could also mean crypto’s time as a subject of “pre-partisan” curiosity could be drawing to a close.

There’s little that galvinizes Democratic lawmakers and their allies among consumer groups like a bankruptcy in which more than a billion dollars are missing.

  • The industry isn’t resisting the calls. Far from it: Major players are arguing that the lack of rules drives companies, like Bahamas-based FTX, offshore in search of clarity.
  • Many crypto players say the chaos around SBF actually proves U.S. lawmakers and government agencies should hurry up.
  • “This is the reason why policymakers in the United States should be focused on putting a clear regulatory framework in place that builds safe markets in the United States,” Circle CEO Jeremy Allaire told my colleague over at Protocol’s Fintech desk.

Theoretically, that sort of agreement could signal agreement on a legislative approach to the industry’s obligations and the legal classification of various digital offerings.

  • In practice, the fact that the industry is grabbing for a talking point about needing regulation shows that any Washington effort could prove complicated.
  • Some voices in crypto have, for a long time, actually been seeking federal rules — ones they can help craft, to guarantee weak oversight and protect incumbents — in a bid to escape onerous, case-by-case litigation by financial regulators wielding outdated statutes.
  • And of course, U.S. laws haven’t stopped plenty of fraudsters — if that’s what SBF is — and many companies from going to places like the Bahamas because they’re just looking for weak regulation rather than clarity.

All that adds up to a lot of incentive for Democratic lawmakers to try to punish the industry, to which crypto business will cry, “We didn’t mean that kind of regulation!”

  • Democrats have an advantage that many political prognosticators didn’t expect: They’ll still be holding power in the Senate next year, and likely will be in the minority in the House only by a few votes.
  • They’ll still have to compromise if they want to get anything done in tech (or otherwise), but Democrats will also be in a stronger negotiating position, able to call hearings and decide what bills come up for votes in the chamber that tends to get its way in legislation.
  • Crypto, like almost everyone else, had been expecting a much more Republican, pro-business Congress for 2023.
  • Instead, bipartisan bills like the proposal from Sens. Gillibrand and Lummis — which crypto saw as, at least, the beginning of a positive conversation — will go away, continue to evolve in a Democratic direction, or simply founder amid partisan bickering.

That bickering may be the greatest risk for crypto.

  • Up until now, the industry has mostly managed to have friends on both sides of the aisle in what some insiders have called a “pre-partisan” positioning.
  • Sure, the loudest critics have been Democrats, and everyone assumes Republicans’ love of the finance sector makes them natural allies to the industry, but in lieu of staunch party lines there’s been room for nuance on both sides.
  • Now, however, some in crypto land are distancing themselves from SBF by pointing out he was a major donor to Democrats, and was somewhat on the regulation train himself.
  • The implication, of course, is that Republicans should resist rules fiercely as a matter of both principle and political loyalty.
  • It’s a personal attack based on a lot of very large checks, and on top of the way the collapse has vindicated Democratic crypto skeptics, it could prompt lawmakers to take sides.

Crypto might even enjoy some bickering, as Republicans push back on Democratic proposals that would put a lot of digital assets under SEC jurisdiction, require more capital reserves at exchanges, and push know-your-customer rules throughout the ecosystem. Long-term, though, the more partisan crypto becomes, the harder it’ll be to pass the very legislation much of the industry is hoping for.

— Ben Brody (email | twitter)

In Washington

Republicans are on track to take control of the House. Current forecasts suggest they could win 221 seats; they will need 218 to control the chamber.

President Biden and President Xi met in the lead-up to the G20 summit. The leaders are believed to have discussed Taiwan tensions, climate change, and semiconductor export controls.

A group of parents urged congressional leaders to pass the Kids Online Safety Act and Children and Teens’ Online Privacy Protection Act. In the letter, 57 parents whose children have died blamed “Big Tech’s abject failure to regulate themselves and protect the young people using their products.”


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In the states

Google will pay more than $390 million to a coalition of 40 states over its collection of location data, according to an announcement from the Louisiana attorney general, who led the group.

Peter Thiel acolyte Blake Masters officially lost his bid to become a senator.

In the courts

Elon Musk is defending his Tesla pay package in court. An investor alleges Tesla’s board failed to disclose important information about the pay package, which was agreed upon in 2018 and is estimated to have generated $52 billion in wealth for Musk.

Elizabeth Holmes’ attorneys argue she should receive 18 months of house arrest instead of decades in prison. In the memorandum for the court, the lawyers describe Holmes as “a mentor to young women and entrepreneurs” and “a boss who cared about the company’s employees.”

On Protocol

Today Protocol published “The Future of Mobility,” a special report examining how policy and climate experts can work together to get people moving. Among the highlights:

A Braintrust that asks industry experts about the biggest electrification milestone that needs to be hit in 2023. Answers included fine-tuning the IRA guidelines, figuring out who pays for decarbonization, and deploying the first round of payments through the National Electric Vehicle Infrastructure program.

In the media, culture, and metaverse

Jeff Bezos said he will give away the majority of his wealth in his lifetime. In an interview with CNN, Bezos and his partner, Lauren Sánchez, said they were going to give a significant portion of the money to fighting climate change.

Twitter faces a growing list of ad boycotters, and winning them back could prove difficult,according to The Wall Street Journal. Chipotle, General Mills, General Motors, Mondelez, and United Airlines have all paused ad spend on Twitter.

Eli Lilly also paused its Twitter ad campaigns after a spoof account likely wiped billions from its market capitalization. An account that was fake but verified, thanks to the paid Blue Check system, posing as the pharmaceutical giant said it would give away insulin for free.

In data

10,000: That’s approximately how many employees Amazon intends to lay off, according to The New York Times. The layoffs will reportedly focus on three divisions: devices, retail, and human resources.

No such thing as a free lunch

Twitter’s workforce has become a shell of its former self — in part because that’s how Elon Musk planned it, and in part because many employees found his management style too abrasive to endure. The latest affront? Taking away free lunch. Musk reportedly plans to make Tweeps pay for food at the company cafeteria. It isn’t the end of the world, but it certainly won’t ease employee tensions.


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Thanks for reading — see you Wednesday!

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