Biden administration worked to stop crypto being ‘dangerously intertwined’ with banks

Referring to the events surrounding the collapse of FTX as “a handful of magic beans,” Massachusetts Senator Elizabeth Warren seemed to frame the “contagion” spreading through the crypto space as a partisan issue.

Speaking at a Senate Banking Committee nomination hearing on Nov. 30, Warren addressed committee counsel Jonathan McKernan, who confirmed that FTX’s bankruptcy had largely not affected traditional banking institutions in the United States. The Massachusetts senator, an outspoken skeptic of cryptocurrencies, used some of her time to applaud the work of Federal Deposit Insurance Corporation, or FDIC, acting chair Martin Gruenberg, who attended as part of his nomination to assume the position as part of a five-year term.

“Our banks stayed safe even as crypto imploded because many of President Biden’s regulators, like acting chairman Gruenberg, fought to keep crypto from becoming dangerously intertwined with our banks,” said Warren. “He did this despite the Trump administration’s and crypto boosters’ aggressive efforts to bring crypto and all its risks into traditional banking.”

Gruenberg responded in the affirmative to one of Warren’s questions in which she claimed the banking system would have been “less safe” had firms like FTX received similar insurance from the FDIC:

“The evidence is clear now. We had companies that were engaging in highly speculative activity, highly leveraged, and vulnerable to a loss of confidence in a run. They did not have direct exposures to the insured financial institutions, and as a result the failure of those firms was really limited to the crypto space, and ended up not impacting the insured banking system.”

Warren went on to refer to crypto assets as “toxic” and unsuitable for integrating into traditional banking, claiming taxpayers could suffer the consequences. The senator was one of the lawmakers behind a Nov. 23 letter calling on the Justice Department to investigate the collapse of FTX and potentially prosecute individuals involved in wrongdoing, specifically naming former CEO Sam Bankman-Fried for his role in the controversy.

Related: How stable are stablecoins in the FTX crypto market contagion?

The ripple effects of a major exchange like FTX declaring bankruptcy amid a bear market are ongoing. Crypto firm BlockFi filed for Chapter 11 bankruptcy on Nov. 28, saying FTX owed certain financial obligations to the company. Global lawmakers and regulators have also announced intentions to investigate the events surrounding FTX and potentially create new regulatory frameworks, including those from the European Central Bank, U.S. state governments and securities regulators in the Bahamas.