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Crypto regulation: 'We’ll see enhanced efforts' following FTX implosion, analyst says

Strategas Securities Director of Policy Research Courtney Rosenberger joins Yahoo Finance Live to discuss crypto regulation, the demise of FTX, the expectations for the upcoming FOMC meeting, and the outlook for a shutdown.

Video Transcript

[AUDIO LOGO]

[MUSIC PLAYING]

GARY GENSLER: I really do suggest to these intermediaries, these storefronts, these casinos, if you wish, to come into compliance, work with the SEC to get into compliance.

KEVIN O'LEARY: If he did break the law or anybody else in there broke the law, they'll face the full force of the law because there's a lot of people that are not happy about this. And I'm one of them.

MICHAEL SAYLOR: This crash accelerates regulatory intervention. I mean, in fact, in a sense, right, SBF is like the Jordan Belfort of the crypto era. Instead of "The Wolf of Wall Street," they'll make a movie called "The King of Crypto."

- Those are some tidbits from some of our guests over the past few weeks, who were weighing in on the FTX collapse and the stunning fall of Sam Bankman-Fried, who, of course, was, as we've been discussing, arrested in the Bahamas. He awaits extradition to the US. He's also been charged in a civil complaint from the Securities and Exchange Commission and the CFTC. All of this coming as lawmakers head to Capitol Hill today to grill John J. Ray, the new administrative CEO of FTX.

- And let's bring in Courtney Rosenberger, managing director of policy research at Strategas, a Baird company. Courtney, thank you for being here. I want to pick up first of all on what Michael Saylor, the MicroStrategy CEO, was saying in that last little bit, which he is saying that this will all accelerate regulation of the industry. But will it?

COURTNEY ROSENBERGER: It's certainly going to accelerate attention on the industry. You're seeing members that had previously not really made any comments about crypto regulation, like on the Senate Banking, Sherrod Brown, start to make comments, start to reach out to regulators. So I do think that we'll see enhanced efforts.

We also have Pat McHenry, the incoming chair of House Financial Services Committee. He has really said that he wants to do stablecoin legislation for the past two years. And now he's been making statements that he still wants to do stablecoin legislation, but he's now looking at potentially having to do additional legislation.

- Courtney--

COURTNEY ROSENBERGER: It's just whether or not they can get an agreement.

- Got it. Sorry. You were breaking up there for a hot second. Even as you were looking through what's already taken place and what comes forward from here, there is this question that I have particularly of what is already in place from a legal perspective, where these companies have leaned into and the exchanges on the crypto front have leaned into their terms and conditions in some cases to pause withdrawals in the event that they don't have enough cash on hand for their customers, which is one of the instances that we saw within FTX, one of many, but now that we're also seeing with Binance today.

COURTNEY ROSENBERGER: Yeah, I mean, I think that that's really going to be the question that lawmakers are trying, going to try to push with FTX today. I think that there's also going to be a lot of attention, particularly from Republicans, going after regulators, whether or not there's more that should have been done to prevent what had happened that was still within regulators' purview. But you're also going to see lawmakers from both sides of the aisle talking about how they have legislation in the works or have proposals that could prevent this going forward.

- Courtney, what type of regulation would be good for this industry at this point?

COURTNEY ROSENBERGER: I mean, first and foremost, they just need clear legislation and regulation in terms of who has regulatory purview, what makes a commodity, what makes a security. Senator Loomis and Senator Gillibrand, they had introduced legislation, the Responsible Financial Innovation Act, this past year. Senator Loomis has said that she's going to reintroduce it. That aims to clearly define what is a commodity, what is a security. And in her definition, Bitcoin is the only cryptocurrency that would qualify as a commodity. Everything else would be a security.

- Courtney, as always, members of Congress, they write a lot of bills. They introduce a lot of bills. Not that many of the bills get passed. So of this pretty broad swath of different bills and legislation that is aimed at this, what is realistically actually going to get through and on what timeline?

COURTNEY ROSENBERGER: I mean, that's a great question. And certainly Congress, particularly a Congress with a Republican House and a Democratic Senate, there's going to be a lot of gridlock. But this is one area where we think that there could be a successful effort, especially now that there's joint concern about consumer protections. You've now had these cryptocurrencies blow up, FTX being the latest one. So there's a lot of concern about the consumer side of the equation. And that could be the catalyst to finally get some action here.

- Additionally while we have you, we've got to talk about what a potential government shutdown would mean right now, especially at a time where there's still so much uncertainty regarding the economy, how the Fed will move forward. We know Congress is tracking all of this. But there's still this need to pass a short-term resolution just to get additional time for Congress and for the government not to shut down.

COURTNEY ROSENBERGER: Yeah, we're not anticipating a government shutdown. We do think that they're going to do a one-week, short-term continuing resolution to by themselves until December 23. And at that point, they're going to have to make a decision.

Can they get an omnibus package done to set spending levels for fiscal year 2023? Certainly we've had members of both sides say that there's been progress there. But there's still a really tight timeline to get an omnibus package done by December 23. So then it becomes a question of, do they do a one-year continuing resolution, which Democrats would probably favor, or do they do a short-term, potentially one-month continuing resolution into January? That's what some Republicans have said that they want to do.

But in reality, we don't think that anyone wants to go into budget trench warfare next Congress, with Republicans in the House and Democrats in the Senate. It would be extremely difficult to get anything done. So we are hopeful that they will be able to get an omnibus package done. But certainly the timing is tight. But we don't think that there's going to be a shutdown.

- Courtney Rosenberger, managing director of policy research at Strategas, a Baird company, good to see you. We'll talk to you soon.