Larry Summers Warns FTX Debacle Could Lead To More Aggressive Crypto Market Regulation

The exponential increase in problems at FTX, previously one of the largest crypto exchanges in the world, could be the catalyst for increased federal regulation of the cryptocurrency world, former Treasury Secretary Larry Summers has warned. .

In a conversation with The Information, Summers predicted a “significant shift” towards more aggressive regulation in the coming months.

FTX saw prices plunge after a run on its currency and a reneged offer to buy the company

“What’s happening in crypto in the last few days is going to scare people and push regulators into action,” he said. “I think there are quite a number of people who have been charmed or bought by [Sam Bankman-Fried], who look and feel pretty dumb and want to recover from this set of mistakes by looking worried and anxious. And I feel like there’s a fair amount of discretionary regulatory authority to do things, especially at the discretion of the very forceful chairman of the SEC.

Trouble started a few days ago, when Binance crypto exchange head Changpeng Zhao, informally known as CZ, flooded the market with FTT tokens, the currency of the FTX exchange. FTX chief Sam Bankman-Fried, also known as SBF, attempted to buy back these tokens to maintain their value. But SBF was over-indebted and its business was soon under water. After Binance initially signed a letter of intent to buy FTX, CZ changed his mind. Now Sequoia Capital, a major investor in FTX, has reduced its investment from $214 million to $0.

Summers also warned the tech sector as a whole that the current weakness is akin to the dotcom debacle of 2000.

“You’ve got a combination of a tech industry that’s over-extrapolated past successes to believe that trees are growing skyward, magnified by…a kind of excessive euphoria in tech,” Summers said. “Peloton equals Pets.com is a very important equation in understanding what’s going on. Today, there are viable business models that look a lot like Pets.com – they just weren’t viable back then. You have this dynamic.

Unlike crypto firms, however, Summers believes the eye-popping layoffs at companies like Twitter and Meta could dampen sentiment in Washington, DC, toward regulation of tech giants.

“I think when you fire people you feel less threatening and therefore the need to regulate yourself substantially is less felt,” he said.

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