As U.S. senators look for ways to gain more control over what's happening in the cryptocurrency industry, accounting firm Mazars Group has suspended all work with its crypto clients.
U.S. senators on Wednesday pressed Congress to regulate cryptocurrency under existing financial rules, as lawmakers scramble to rein in the troubled industry amid the scandal surrounding the FTX exchange. The hearings rocked the $4 trillion to $6 trillion crypto boat, causing quotes to plummet.
Recall that in addition to the bankruptcy of the aforementioned exchange, prosecutors filed criminal charges against FTX founder Samuel Bankman-Fried. In particular, prosecutors charged Bankman-Fried with money laundering and fraud, as well as a number of other violations. The charges capped a stunning downfall for Bankman-Fried, who amassed a fortune of more than $20 billion when he took advantage of the cryptocurrency boom to turn FTX into one of the world's largest exchanges before it suddenly collapsed this year.
Lawmakers generally agree that cryptocurrencies should have greater regulation, but there are differing views on how the industry should be regulated.
Critics say that the crypto world is riddled with fraud and misconduct, but proponents say the industry simply suffers from a lack of regulation. Those seem to be two sides of the same coin.
"It's time for Congress to make the crypto industry follow the same money laundering rules as everyone else," U.S. Senator Elizabeth Warren said during a hearing of the key Senate Banking Committee.
Earlier, she and Republican Senator Roger Marshall from Kansas announced legislation aimed at closing money-laundering loopholes in the crypto industry. Warren wants to hand control of crypto oversight to the Securities and Exchange Commission (SEC). Republican Senator Cynthia Lummis said at the hearing that she plans to reintroduce a bill that would give more authority to the Commodity Futures Trading Commission (CFTC).
But there is also criticism of the authorities' actions.
For example, Republican Senator Pat Toomey, the ranking member of the Banking Committee, said he did not think the money laundering rules were well-suited to cryptocurrency, describing the existing anti-money laundering technologies as "archaic". Obviously, new methods, primarily technological ones, are needed for effective control.
When asked if he thought Washington bore some of the blame for the FTX collapse, Toomey agreed. Well, many lawmakers seem to be aware of what's going on. Toomey also confirmed that offshoring in principle was made possible in the Bahamas and other separate areas precisely because of a lack of legislation.
Each of the hearing's witnesses, including actor and crypto skeptic Ben McKenzie Schenkkan, SharkTank television personality and FTX investor Kevin O'Leary, said they believe there is likely more fraud to be found in the cryptocurrency world.
Without U.S. regulation, the value of crypto-investments could disappear, said hearing witness and American University law professor Hilary Allen.
Amid the buzz among lawmakers, New York's financial regulator has already issued guidance on cryptocurrency for banks.
But while Congress is trying to do something about the avalanche of bankruptcies in the crypto industry, Mazars, the accounting firm that works with major cryptocurrency exchange Binance, said Friday that it has suspended all work for clients in the crypto industry.
The audit firm had performed a so-called proof-of-reserves check on Binance's bitcoin holdings earlier this month, finding its reserves on a single day in late November were overcollateralized. But now Mazars has removed the webpage containing the report, published Dec. 7.
"Mazars has paused its activity relating to the provision of Proof of Reserves Reports* for entities in the cryptocurrency sector due to concerns regarding the way these reports are understood by the public," the company said in a statement.
Mazars' pause came amid intense scrutiny, sparked by the bankruptcy of the FTX exchange, of how such platforms hold user funds.
Apparently, crypto exchanges were painfully aware of the unsightly side of the turnover and were somehow able to influence Mazars in an attempt to avoid a widespread drop in quotes.
However, the process is already underway. Let me express skepticism, however. Let's be frank, there has been talk of crypto regulation for a long time, in particular, Congress heard such reports a year ago. Since then, however, there has been no explicit attempt to regulate the controversial market.
We should all realize that this industry now weighs between $4 trillion and $6 trillion. Too harsh and sudden regulation will not stop mass bankruptcies, but will only accelerate them. Against the backdrop of the recession, this will look like an attempt by the government to shift the pressure of the recession onto a segment of the market where the rights of crypto holders are very little protected. This could trigger a wave of backlash - up to and including cyber-attacks on the personal data of congressmen.
But the truth is also that everyone understood this in 2020 - from congressmen to the youngest traders - and still allowed large investment funds and banks at the level of Goldman Sachs to participate in the race for profits from bitcoin and other coins trading, pumping the industry with the cheap dollar. Now, of course, those same banks will try to shift their losses to the crypto industry, protecting the equities and derivatives segment. Simply because they have so many opportunities to do so. And because it will keep their balance in check.
In other words, it's time for the crypto industry to pay the bill for the feverish greed with which it absorbed borrowed money two years ago. And yes, it's going to be a hard landing.
Nevertheless, regulation is badly needed and will help the industry find its place in the settlement and turnover of goods and services. I think we all have to go through this painful lesson.
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