The Coinbase chief has hit back at calls for tighter regulation on U.S. crypto firms in the wake of FTX’s liquidity crisis, saying it “makes no sense” given that many so many crypto companies are based offshore.
His comments came after Senator Elizabeth Warren, who has been highly critical of the crypto sector, tweeted on Wednesday that the FTX crisis showed how much of the industry “appears to be smoke and mirrors.”
She added that “more aggressive enforcement” was needed, and she would continue pushing the Securities and Exchange Commission (SEC) “to enforce the law to protect consumers and financial stability.”
But Coinbase co-founder Brian Armstrong said the SEC was itself the problem, in that it had “failed to create regulatory clarity here in the U.S., so many American investors (and 95% of trading activity) went offshore.”
Since FTX operated offshore, it was not regulated by the SEC, with Armstrong adding, “punishing U.S. companies for this makes no sense.”
FTX did not allow American residents to trade on its main platform, instead operating a separate exchange for them, FTX US.
But the company had still found itself in the crosshairs of U.S. regulators, with the SEC, Department of Justice, and Commodities and Futures Trading Commission all reported to be investigating the subsidiary.
Probes at the SEC and CFTC began months ago, according to Bloomberg, and are focused on the relationships between FTX and its US subsidiary, as well as its relationship with sister entity Alameda Research.
Armstrong clarified earlier this week that Coinbase has no material exposure to FTX or Alameda.
FTX is now in danger of bankruptcy without a cash injection after a rescue deal with Binance was called off.
US regulation battle rumbles on
This year’s series of crises in the crypto industry has heaped pressure on regulators to adjust their approach.
In the U.S., a proposed bill to regulate cryptocurrency would introduce “a comprehensive framework” for crypto and create more clarity on where the SEC should have oversight of the industry and where this should fall to the CFTC.
Meanwhile, critics such as Warren have called for stronger rules to be put in place that would protect consumers.
She and other lawmakers also called out the industry’s revolving door last month, asking regulators how they prevent conflicts of interest when their former employees enter the crypto world and vice versa.
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