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After crypto exchange FTX collapsed, Washington policymakers debate how to respond

STEVE INSKEEP, HOST:

Could the collapse of FTX finally prompt Congress to better regulate cryptocurrency? One of the world's leading crypto exchanges fell apart in a matter of days. NPR's David Gura reports on what could be done.

DAVID GURA, BYLINE: Crypto companies have collapsed before. Cryptocurrencies have cratered. And by and large, it's been status quo on Capitol Hill. But according to Republican Senator Pat Toomey, the ranking member of the Senate Banking Committee, this moment feels different.

PAT TOOMEY: It's sort of a combination, I think, of the fact that we're deep in a pretty cold crypto winter. And during this difficult time, we've seen this really unbelievable explosion of this iconic firm.

GURA: Yet to be seen is if Washington's reaction will be different. FTX went from being valued at more than $30 billion to filing for bankruptcy last week, and now hundreds of thousands of customers are desperately trying to recover money that may be gone for good. Unlike banks, there is no government backstop in crypto. There's no deposit insurance. The guardrails that are in place are inadequate, says Toomey, whose investment portfolio includes crypto. He argues lawmakers have to give regulators more guidance.

TOOMEY: I think the inaction of Congress and the inconsistency and confusion of regulators has contributed to this problem.

GURA: A week after FTX filed for bankruptcy, the Justice Department is reportedly investigating the company and its now former CEO, Sam Bankman-Fried. So are the government agencies that oversee digital assets, a familiar alphabet soup of financial regulators. When it comes to crypto and crypto companies, bureaucrats are locked in a turf war over who oversees what. Of course, legislation could put an end to that. During an onstage interview at an industry conference last week, Rostin Behnam, who regulates the derivatives market, said he has the tools he needs to ensure crypto companies registered with his agency comply with its rules and regulations...

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ROSTIN BEHNAM: And we will use that authority to the full extent of the law.

GURA: ...Charging companies and individuals and levying fines and other penalties. But plenty of crypto companies are not registered with his agency, the CFTC, or with the other big financial regulator, the SEC. Its chair, Gary Gensler, says the door to his office is open, and he encourages the heads of crypto companies to meet with him, his staff, to discuss registering. In fact, Bankman-Fried paid him a visit twice in the past. But during an appearance on CNBC just hours before FTX filed for bankruptcy, Gensler indicated he's getting impatient with companies issuing cryptocurrencies, which he says are securities, like stocks. Gensler wants these companies to provide the public with more information, to be more upfront about risks. Essentially, he wants to put in place more investor protections.

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GARY GENSLER: The laws are clear. And look; the runway is running out.

GURA: The White House has encouraged regulators to double down on enforcement under existing laws, rules that predate crypto. But more enforcement requires more resources, regulators say, so Gensler is not just asking for additional regulatory clarity; he also wants a bigger budget. Well, so far, Congress' response has been familiar. There have been short statements. The relevant committees say they're calling witnesses to testify. But legislation? Earlier this week, Republican Senator Cynthia Lummis, who chairs the Financial Innovation Caucus, addressed FTX's collapse.

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CYNTHIA LUMMIS: You know, it's awful and, simultaneously, not all that surprising.

GURA: Lummis, who owns bitcoin, introduced a bill with Democratic Senator Kirsten Gillibrand in June. They called it the first comprehensive framework for regulating cryptocurrencies and other digital assets. But that legislation hasn't made it out of committee to the Senate floor for a vote.

David Gura, NPR News, New York. Transcript provided by NPR, Copyright NPR.

Based in New York, David Gura is a correspondent on NPR's business desk. His stories are broadcast on NPR's newsmagazines, All Things Considered, Morning Edition and Weekend Edition, and he regularly guest hosts 1A, a co-production of NPR and WAMU.