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FT editor Roula Khalaf picks her favourite stories in this weekly newsletter.
The author is president of a financial reform advocacy group Better markets
After years of cryptocurrency barons being handcuffed and sent to prison, numerous high-profile bankruptcies, widespread fraud and manipulation, breathtaking volatility, and a long list of lost lawsuits, the cryptocurrency industry is nevertheless booming in the United States.
This is partly because it has a huge cash hoard that it is willing to spend on campaigns to buy the support of politicians who will support its special interest agenda. The crypto industry’s big goal is to choose its own regulator and gain a veneer of legitimacy, but without being overly regulated at all.
The Securities and Exchange Commission (SEC) is a very powerful and effective regulator in the cryptocurrency space. The industry therefore considers this regulator its “mortal enemy.” Cryptocurrency proponents want their political allies to hand over the management of cryptocurrencies to the smallest, least funded, least competent, and most easily captured financial regulatory agency: the Commodity Futures Trading Commission.
When it comes to cryptocurrencies, it is clear from many cases that virtually all of the tokens that are traded fall comfortably within the standard definition of securities and should be regulated by the SEC as such. Those that are not securities fall comfortably within the standard definition of commodities and should be regulated by the CFTC as such.
There is very little controversy about this among people who are not employees of the cryptocurrency industry. And it is also why the SEC wins almost every lawsuit it brings against cryptocurrency companies, which argue that most, if not all, of the securities, commodities, and banking laws that apply to all other U.S. financial companies do not apply to them.
Less than two years after many politicians scrambled to return the industry’s campaign contributions from the fraud-tainted FTX, cryptocurrency is being promoted to the point of wanting to influence Kamala Harris’ presidential campaign. One of the arguments being put forward is the supposed need to counter Donald Trump’s adoption of crypto.
The cryptocurrency industry appears to be making some progress. Officials from the Biden administration and the Harris campaign recently held a conference call with industry figures. Harris is expected to reject these overtures. Here’s why:
First, after years of efforts and statements claiming that cryptocurrencies have real value, there is still no real argument for using them for legitimate purposes over existing currencies. They remain the financial product of choice for financial predators, lawbreakers and criminals around the world. The least harmful use is speculation and gambling (as opposed to their other uses for tax evasion, fraud, ransomware, sanctions evasion, terrorist financing, drug trafficking, money laundering, etc.).
Second, easing cryptocurrency regulations is not a top concern for the American people. Contrary to industry propaganda, only 18 million American adults use or own cryptocurrencies and that number is declining, according to data from a Federal Reserve survey.
This is actually a very unique problem. Of the 88% of Americans who have heard of cryptocurrencies, a Pew Research survey last year found that a supermajority of 75% have little or no confidence in the reliability and security of cryptocurrencies. Significantly, between 61 and 77% of voters in six key states have a negative view of cryptocurrencies, according to venture capital firm Digital Currency Group and polling firm Harris Group (no affiliation with the vice president).
Third, the cryptocurrency industry’s long criminal history is at odds with Harris’ long and strong record as a prosecutor fighting for consumer and investor protection and against financial industry lawbreaking. Remember, when she was California’s attorney general, she was under enormous pressure to agree to a global subprime mortgage settlement with the biggest and most powerful banks on Wall Street. Harris was tough, even reportedly saying no to JPMorgan CEO Jamie Dimon on a settlement. It’s not easy. But she stood her ground and got a much better deal for California.
Finally, communities of color are disproportionately targeted by cryptocurrency scams. Yes, these communities are rightfully skeptical of the traditional financial system that has excluded, discriminated against, and exploited them for so long. Unfortunately, this makes them a target for the cryptocurrency industry, which offers them false opportunities for wealth creation. A 2021 survey by the University of Chicago’s NORC social science research institute estimated that 44% of cryptocurrency traders were non-white.
Harris has a lot on her plate as the US election approaches. Giving in to threats from the cryptocurrency industry shouldn’t be one of them.
