Tomorrow, the Senate Banking Committee will hold a markup on its portion of a cryptocurrency market structure bill. The markup was originally scheduled for January but was postponed the night before after Coinbase CEO Brian Armstrong publicly withdrew his support for the legislation on X. One of the most common arguments advanced in support of crypto market structure legislation is that the United States must provide “clear rules of the road” for digital assets in order to prevent another FTX-style collapse. According to this narrative, FTX established itself in the Bahamas because the United States lacked a comprehensive regulatory framework for crypto. Had Congress acted sooner, proponents argue, FTX would have operated within the United States under proper supervision instead of relocating offshore to avoid regulatory uncertainty.
In the aftermath of FTX’s collapse, crypto executives and sympathetic lawmakers quickly converged around this explanation.
Brian Armstrong, CEO of Coinbase, declared:
“FTX.com was an offshore exchange not regulated by the SEC. The problem is that the SEC failed to create regulatory clarity here in the US, so many American users (and 95% of trading activity) went offshore. Punishing US companies for this makes no sense.”
Senator Cynthia Lummis claimed:
“The recent events that have transpired between FTX and Binance are the clearest example yet of why we need clear rules of the road for digital asset exchanges in the United States.”
Jeremy Allaire, CEO of Circle, similarly argued:
“The lack of a clear and sound regulatory framework for US crypto markets has left people exposed to the supervisory powers of the Bahamas and who knows where for others.”
Jesse Powell, co-founder of Kraken posted:
“US lawmakers & regulators have some accountability too. You drove this business offshore because you refused to provide a workable regime under which these services could be offered in a supervised manner. Enforcement wrongfully focuses on convenient, on-shore good actors.”
Congressman French Hill, during a hearing on a prior version of market structure legislation, argued:
“Importantly, the market structure bill would prevent another FTX from happening by ensuring that customer assets are protected, by providing robust guardrails to mitigate conflicts of interest, and by establishing clear oversight and supervisory authority for Federal regulators to ensure that market participants like dealers, exchanges, and custodians are compliant with our securities and related commodity laws.”
The problem with this narrative is that it is completely backwards. FTX did not collapse because the Bahamas lacked a bespoke crypto regulatory framework. FTX chose the Bahamas precisely because it had one.
The crypto industry’s “clarity” talking point is a form of Orwellian doublespeak deployed to advance a self-serving deregulatory agenda in Washington. The reality is that FTX and many other crypto firms deliberately avoided the United States because they did not want to register with the SEC and comply with the federal securities laws.
Rather than comply with the SEC’s interpretation of the securities laws – which would have required significant changes to the industry’s highly profitable but conflict-ridden business model – crypto firms faced two choices. They could remain in the United States and fight the SEC in court, as firms like Coinbase and Kraken chose to do, or they could relocate to more permissive offshore jurisdictions. FTX chose the latter path, establishing itself in the Bahamas under a lighter-touch, crypto-specific regulatory framework tailored to the industry’s preferred mode of operation.
As I have noted repeatedly in congressional testimony, the SEC’s position on cryptocurrency was remarkably clear and consistent prior to the second Trump administration. Both Jay Clayton, the SEC Chairman during the first Trump administration, and his successor under President Biden, Gary Gensler, repeatedly stated that most cryptocurrencies are securities that must comply with federal securities laws. Courts have repeatedly affirmed the SEC’s authority in crypto-related enforcement actions, and despite the industry’s complaints about “regulation by enforcement,” the SEC amassed an extraordinary win-loss record in crypto litigation.
Sam Bankman-Fried’s Vision of “Regulatory Clarity”
When crypto executives call for “regulatory clarity,” what they really mean is a bespoke regulatory framework that allows crypto firms to continue operating largely as they already do, without the full weight of the federal securities laws.
Indeed, Sam Bankman-Fried himself became one of the loudest proponents of “regulatory clarity” in Washington. FTX played a central role in promoting and lobbying for the proposed Digital Commodities Consumer Protection Act (DCCPA), a bipartisan Senate bill introduced in 2022 that would have dramatically expanded the Commodity Futures Trading Commission’s authority over crypto spot markets. The legislation became so closely associated with FTX that critics eventually referred to it as the “SBF Bill.”
After FTX’s collapse, lawmakers openly questioned the company’s involvement in shaping the legislation. Yet despite the reputational damage suffered by the DCCPA after FTX imploded, many of its core concepts remain alive in current Senate market structure proposals.
Today’s proposed legislation is, in many respects, an evolutionary descendant of the DCCPA. Like the earlier bill, the current Senate Agriculture and Banking Committee proposals are built around the same fundamental premise: Congress should create a bespoke federal regulatory framework for digital asset spot markets rather than relying primarily on existing securities laws and SEC enforcement authority. This framework seeks to expand CFTC oversight of crypto spot markets, require registration of crypto intermediaries, establish federal standards for custody and market integrity, and formally recognize categories of crypto assets capable of trading outside the traditional securities-law framework. In other words, many of the same policymakers now invoking FTX as proof that Congress must create bespoke crypto rules are advocating for regulatory frameworks that closely resemble the very environment FTX sought out, operated under, and actively promoted both in the Bahamas and in Washington.
The Bahamas Builds a Crypto Regulatory Framework
The Bahamas did not lack crypto-specific regulation prior to FTX’s collapse. Quite the opposite. The country had already established one of the world’s first comprehensive crypto regulatory frameworks through the Digital Assets and Registered Exchanges Act of 2020, commonly known as the DARE Act.
The decision by the Bahamian government to aggressively pursue digital asset regulation was driven largely by economic necessity. Tourism and offshore finance together account for roughly 70 percent of Bahamian GDP, and the twin shocks of Hurricane Dorian and the COVID-19 pandemic exposed the fragility of that economic model. In response, Bahamian policymakers sought to reposition the country as a global fintech hub.
The Bahamas signaled its ambitions early by launching the Sand Dollar in 2020, the world’s first retail central bank digital currency. That same year, Parliament enacted the DARE Act, which was widely praised within the crypto industry as one of the most sophisticated crypto-specific regulatory frameworks in the world.
The DARE framework centralized authority in the Securities Commission of The Bahamas. The law established a bespoke licensing and supervisory regime for digital asset businesses operating in or from within the Bahamas. It covered exchanges, token issuers, wallet providers, custodians, payment-service businesses, and other crypto intermediaries. The framework required registration, capital standards, AML compliance programs, and internal controls. But it also gave firms substantial operational flexibility and provided the type of direct regulator engagement the crypto industry had long demanded in the United States.
Why FTX Chose the Bahamas
FTX moved its headquarters from Hong Kong to Nassau in 2021 because Sam Bankman-Fried believed the Bahamas offered the ideal environment for operating a global crypto exchange.
FTX Digital Markets was incorporated in July 2021 and received approval under the DARE Act in September of that year. In a press release announcing the move, Sam Bankman-Fried explicitly praised the Bahamian framework:
“With this expansion through the DARE Act we are further committing to providing all our clients with a safe, trustworthy, and compliant exchange. We are committed to maintaining a close working relationship with local regulators so that together we can navigate putting a comprehensive regulatory framework in place to help promote the growth of this nascent asset class.”
The attraction was straightforward: a bespoke crypto regulatory framework, a single regulator, direct access to policymakers, broad legal permission to operate, tax advantages, and geographic proximity to the United States.
The Bahamas provided mutual legitimacy. FTX gained credibility by operating under a formal regulatory framework, while Bahamian regulators gained prestige from hosting one of the world’s largest crypto exchanges. That arrangement proved disastrous.
The Failure of the Bahamian Model
The collapse of FTX exposed enormous weaknesses in the Bahamian framework despite its much-celebrated “clarity.” The DARE Act did not prevent the commingling of customer funds, catastrophic conflicts of interest, opaque affiliated-party transactions, inadequate governance, or the transfer of billions of dollars to Alameda Research. Alameda itself was not regulated in the Bahamas despite functioning as an integral part of the FTX ecosystem. The framework also lacked meaningful restrictions on vertical integration between exchanges, custodians, proprietary traders, and affiliated market participants.
Most importantly, Bahamian regulators lacked the resources and supervisory capacity to oversee a sprawling global crypto conglomerate. In fact, the DARE Act contained numerous provisions that, at least on paper, prohibited or restricted many of the types of conduct later associated with FTX and Alameda Research. The problem was not necessarily the absence of rules, but the ability to enforce them.
Bahamian officials later acknowledged that the 2020 DARE framework contained “gaps,” “ambiguities,” and procedural weaknesses exposed during the 2022 crypto crisis. The country ultimately replaced the original law with a significantly revised DARE Act in 2024 that imposed stricter requirements on custody, staking, disclosures, stablecoins, governance, and customer protections.
That sequence of events is important because it directly undermines the simplistic “clarity prevents collapse” narrative advanced by crypto lobbyists in Washington. The Bahamas already had clarity. What it lacked was a sufficiently robust supervisory and enforcement regime capable of policing a highly complex and rapidly evolving industry.
How Current Senate Proposals Resemble the Bahamian Model
The similarities between the Bahamian framework and current U.S. proposals are not exact, but they are conceptually significant.
Like the Bahamas, the current Senate proposals reject the idea that existing securities laws are sufficient to govern crypto markets. Instead, it seeks to construct bespoke crypto-specific legal categories and regulatory pathways. The Senate Agriculture Committee’s Digital Commodity Intermediaries Act would create a CFTC-centered framework for digital commodity exchanges, brokers, and dealers. The Banking Committee’s Digital Asset Market Clarity Act would create tailored disclosure and registration regimes for “ancillary assets” and “network tokens,” while establishing transition pathways from securities-like fundraising arrangements to “decentralized” digital commodities.
The complexity of these proposals is itself a risk. Former CFTC Chairman Timothy Massad has warned that sweeping crypto market structure legislation could create an intricate legal taxonomy ripe for exploitation by sophisticated market participants and their lawyers. Testifying before the U.S. House Financial Services Committee on the CLARITY Act, which passed the House last summer, Massad cautioned:
“There should be no doubt that many, many lawyers will spend huge amounts of time developing ways to exploit this legislation and engage in regulatory arbitrage strategies on behalf of their clients, in order to find ways to take advantage of lesser compliance burdens.”
Rather than reducing uncertainty, highly engineered distinctions between “digital commodities,” “ancillary assets,” “network tokens,” and decentralized systems may simply invite years of litigation, regulatory arbitrage, and transactional structuring designed to avoid stricter securities regulation. Complexity creates opportunity for regulatory arbitrage. Clever lawyers and market participants will exploit any ambiguity or jurisdictional overlap to minimize oversight obligations.
The current Senate proposals are far more institutionally complex than the Bahamian model. Rather than one regulator overseeing a bespoke crypto framework, the U.S. approach would involve overlapping authority across the SEC, CFTC, Treasury, FinCEN, banking regulators, and bankruptcy courts. That complexity does not necessarily produce stronger safeguards. In some cases, it may simply create more avenues for avoidance.
What the United States Should Learn from FTX
The Bahamian experience demonstrates that bespoke crypto regulation is not inherently synonymous with investor protection or financial stability. Clear rules can attract firms. They can also legitimize dangerous business models, facilitate regulatory arbitrage, and create a veneer of credibility around firms that remain fundamentally unsafe.
The Bahamas also illustrates a more important lesson that current Senate proposals largely ignore: a regulatory framework is only as effective as the regulator enforcing it. FTX did not collapse because the Bahamas lacked rules. It collapsed because regulators lacked the resources, expertise, institutional culture, and political independence necessary to aggressively supervise a sprawling and politically connected crypto conglomerate.
That lesson has direct relevance for the United States as Congress considers giving the Commodity Futures Trading Commission sweeping authority over crypto spot markets. There is a reason the crypto industry has spent years lobbying for the CFTC to become its primary regulator. Compared to the SEC, the CFTC is far smaller, less resourced, and historically less focused on retail investor protection. As noted in a recent Democracy Defenders Fund report that I co-authored, the SEC operates with an annual budget of roughly $2 billion and approximately 5,000 employees, while the CFTC’s requested FY2026 budget was roughly $400 million with only about 640 full-time staff. The report further notes that the CFTC’s own Office of Inspector General warned that the agency’s FY2026 budget request “does not appear to estimate or include funds necessary to regulate the digital asset marketplace.”
Even more troubling, the CFTC’s enforcement capabilities have been significantly weakened precisely as Congress considers dramatically expanding its jurisdiction. The Democracy Defenders Fund report details how the agency’s Chicago enforcement office – historically the “spiritual home” of U.S. futures enforcement and the office that previously led major crypto cases against Binance and FTX – reportedly no longer has any enforcement attorneys assigned to it. As one recently departed enforcement attorney told Barron’s, if he “was a different person,” he “would launch a crypto scam right now, because there’s no cops on the beat.”
The risks are compounded by the fact that the CFTC is increasingly fixated on another rapidly expanding and politically charged market: prediction markets. In recent months, the agency has devoted substantial political and legal energy to defending the expansion of event-contract trading tied to elections and sports gambling, even as lawmakers and outside observers warn that the CFTC lacks the staffing and infrastructure necessary to oversee these markets responsibly.
This institutional drift matters because every hour the CFTC spends defending sports betting-style event contracts, litigating jurisdictional disputes with states, or championing politically connected prediction-market firms is an hour not spent building the supervisory infrastructure necessary to oversee trillion-dollar crypto spot markets. Congress appears poised to hand the CFTC responsibility for supervising some of the most complex, conflict-ridden, and globally interconnected financial markets in the world at the precise moment the agency’s enforcement resources are shrinking, its leadership is becoming increasingly aligned with the crypto industry, and its attention is being diverted toward highly politicized prediction-market battles.
Even the most sophisticated statutory framework is meaningless if regulators lack the resources, expertise, independence, or political will to aggressively supervise the industry. That is the real lesson of FTX. The Bahamas had “regulatory clarity.” What it lacked was a regulator capable of resisting industry influence and aggressively enforcing the rules already on the books. The United States risks repeating that mistake if it transfers crypto spot-market oversight to a captured, under-resourced, and increasingly distracted CFTC.
Conclusion: “Regulatory Clarity” Is Not Enough
The central lesson of FTX is therefore not that the United States lacked “rules of the road.” It is that bespoke crypto regulatory frameworks can themselves become instruments of regulatory arbitrage when they are designed primarily to accommodate the business models of the industry they supervise.
FTX did not flee uncertainty. It fled the possibility that existing securities laws, and an aggressive SEC willing to enforce them, would meaningfully constrain its operations. The Bahamas offered exactly what the company wanted: a bespoke crypto framework, direct regulator engagement, broad operational flexibility, and a lighter-touch supervisory environment that conferred legitimacy without imposing the full burdens of traditional financial regulation.
That is why it is deeply ironic that many of the same industry executives and policymakers who now invoke FTX as proof that Congress must create “regulatory clarity” are simultaneously advocating for legislation that would recreate many of the same structural dynamics that existed in the Bahamas. Current Senate proposals would move large portions of the crypto industry into a bespoke CFTC-centered framework administered by a smaller, less-resourced agency that the crypto industry has spent years cultivating as its preferred regulator.
Preventing another FTX therefore requires more than simply drafting crypto-specific statutes or creating new legal categories like “digital commodities” and “network tokens.” It requires regulators with the authority, resources, expertise, independence, and political willingness to police an industry whose incentives often run directly against the principles of investor protection and market integrity.
Lee Reiners is a lecturing fellow at Duke University
