On January 31 of last year, Oliver Sullivan reported at Lawyer Monthly that the growing list of countries “that wholly banned cryptocurrencies includes China, Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh and (as of this month) Kosovo. Forty-two others have passed restrictions to this effect, prohibiting crypto exchanges or limiting the ability of banks to engage with crypto.”
Compare that to the United States, which increasingly looks like a financial backwater, with questionable crypto deposits blowing up federally-insured banks; collapsing publicly-listed crypto mining stocks whose business model is to pump more fossil fuels into the atmosphere in order to solve complex mathematical problems that have no productive purpose; $8 billion in customer funds going missing at the FTX crypto exchange which was promoted by media darlings on television; and, of course, Big Law firms getting fat at the crypto bankruptcy trough after shilling for these same crypto firms for years before federal regulators.
On NBC’s Meet the Press on Sunday, December 18, Senator Sherrod Brown, the Chair of the Senate Banking Committee, was asked by host Chuck Todd if crypto and the massive fraud at FTX didn’t demonstrate that there is “a huge vulnerability in our system?” Senator Brown responded as follows:
“We had our sixth hearing on crypto to educate the public about its dangers. Not just the Ponzi scheme you talk about and not just the lack of consumer protection or regulation, but also the threat to national security from Korean cyber criminals to drug trafficking and human trafficking and financing of terrorism and all the things that come out of crypto.”
Let that sink in for a moment. Ten other countries also determined that crypto was a national security threat and outlawed it. The U.S. knows it’s a national security threat but allowed it to be promoted to its citizens on television in Super Bowl commercials.
Todd then asked Brown if crypto should even be legal in the United States. Brown responded that banning it is very difficult because it would go offshore “and who knows how that will work.” (You can watch the full exchange between Todd and Brown beginning at 7:43 minutes at this Meet the Press link.)
Actually, we do already know how crypto going offshore will work. The key business units of FTX were registered in Antigua and Barbuda with its physical headquarters in the Bahamas. But if selling crypto or trading crypto in the United States had been illegal, we wouldn’t currently be looking at 2.7 million user accounts at FTX.US bilked out of their life savings. We also wouldn’t currently be looking at another international financial scandal perpetuated by a U.S. citizen who is being compared around the world to another U.S. Ponzi artist, Bernie Madoff. How many times can the U.S. be at the center of global financial frauds before there is capital flight out of the U.S. because our financial safeguards are no longer trusted?
In fact, the issue of capital flight was raised last Wednesday in a speech given by Christy Goldsmith Romero, a Commissioner at the Commodity Futures Trading Commission, a federal regulator. Romero spoke before an audience at the Wharton School and the University of Pennsylvania Carey Law School on “Crypto’s Crisis of Trust: Lessons Learned from FTX’s Collapse.” On the topic of capital flight, Romero had this to say:
“Financial markets are heavily dependent on public trust. Without that trust, financial markets would not be able to help entrepreneurs and companies raise capital and manage risk. When financial markets and key institutions lose the public’s trust, capital flight follows and economic activity slows.”
And exactly what does the U.S. have to show in the way of innovation or long-term job growth or scientific breakthroughs from our 14-year nightmare with crypto experimentation and millions of ripped-off consumers? Congressman Jake Auchincloss (D-MA), who has degrees in Economics and Finance from Harvard University and MIT Sloan, brilliantly summed it up at a December 13 hearing of the House Financial Services Committee. Auchincloss stated:
“I want to close, really with comments directly to the broader industry. I’ve long said that I’m neither a crypto bull or a bear. My job as a policy maker is not to deliver new products or technology but rather to advance laws and regulations that protect consumers, that preserve market integrity, and advance the U.S. dollar as the world’s reserve currency. And I maintain this market and tech agnostic position. I think it’s the appropriate one. We need strong and clear regulations here from Washington.
“But I do want to say that my patience with the crypto bulls is wearing thin. It’s been 14 years and the American public has heard lots of promises but has seen lots of Ponzi schemes. For crypto, it’s time to put up or shut up. It’s worth noting that ARK, the innovation investor, several years ago identified five general purpose technologies of the future: DNA sequencing; artificial intelligence; robotics, energy storage and blockchain. And yet, those first four disruptive technologies have already delivered game-changing innovation that affect my constituents in daily life. Blockchain has thus far delivered white papers and podcasts about Bitcoin and Doge, NFTs, DeFi and more. And it’s all interesting; it’s exciting even; but none of it has achieved product market fit at scale. And it’s time for the blockchain investors and entrepreneurs to build things that matter or to lose more credibility.”
Auchincloss is far from the only person who thinks crypto and blockchain are failed experiments or delusional pipedreams. On June 1 of last year, more than 1,600 scientists and software engineers sent a letter to Congressional leaders and Committees that oversee U.S. financial markets. The signatories to the letter included employees of Google, Microsoft and Apple as well as respected technology experts with Ph.Ds from the University of Oxford and MIT. The letter summed up their findings as follows:
“We strongly disagree with the narrative—peddled by those with a financial stake in the crypto-asset industry—that these technologies represent a positive financial innovation and are in any way suited to solving the financial problems facing ordinary Americans…
“As software engineers and technologists with deep expertise in our fields, we dispute the claims made in recent years about the novelty and potential of blockchain technology. Blockchain technology cannot, and will not, have transaction reversal or data privacy mechanisms because they are antithetical to its base design. Financial technologies that serve the public must always have mechanisms for fraud mitigation and allow a human-in-the-loop to reverse transactions; blockchain permits neither.”
How many more millions of U.S. citizens will have their life savings embezzled by crypto conmen before Congress takes strong, meaningful action on crypto?
This article first appeared on Wall Street on Parade.