On January 31 of last year, Oliver Sullivan reported to Monthly Lawyer that the growing list of countries “that have completely banned cryptocurrencies includes China, Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh and (as of this month) Kosovo. Forty-two others have adopted restrictions to this effect, banning crypto exchanges or limiting the ability of banks to engage with crypto.
Compare that to the United States, which is increasingly looking like a financial backwater, with dodgy crypto deposits. blow up federally insured banks; collapse of publicly traded crypto mining stocks whose economic model consists of pump more fossil fuels into the atmosphere in order to solve complex mathematical problems that have no productive purpose; $8 billion in customer funds disappear to the FTX crypto exchange which was promoted by media darlings on the television; and of course, Big Law Firms Grow in Crypto Bankruptcy Low after shilling for those same crypto companies for years before federal regulators.
On NBC Meet the press On Sunday, Dec. 18, Senator Sherrod Brown, Chairman of the Senate Banking Committee, was asked by host Chuck Todd if crypto and 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 crypto hearing to educate the public about its dangers. Not just the Ponzi scheme you’re talking about and not just the lack of consumer protection or regulation, but also the national security threat from Korean cybercriminals to drug and human trafficking and terrorist financing and of anything out of crypto. ”
Let that sink in for a moment. Ten other countries have also determined that cryptography poses a threat to national security and have banned it. The United States 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 replied that banning him is very difficult because he would go off “and who knows how that will work out.” (You can watch the full exchange between Todd and Brown starting at 7:43 minutes at this Meet the Press Link.)
In fact, we do already find out how crypto will work overseas. The major FTX business units have been registered in Antigua and Barbuda with its physical headquarters in the Bahamas. But if selling crypto or trading crypto in the US had been illegal, we wouldn’t currently see 2.7 million user accounts on FTX.US robbed of their savings. Nor would we be looking at yet another international financial scandal perpetuated by an American citizen who is being compared around the world to another American Ponzi artist, Bernie Madoff. How many times can the United States be at the center of global financial fraud before there is capital flight out of the United States because our financial guarantees are no longer reliable?
In fact, the issue of capital flight was raised last Wednesday in a speech by Christy Goldsmith Romero, commissioner at the Commodity Futures Trading Commission, a federal regulator. Romero spoke to audiences at the Wharton School and Carey Law School at the University of Pennsylvania on “Crypto Crisis of Confidence: Lessons from the FTX Collapse.” On capital flight, Romero had this to say:
“Financial markets are highly dependent on public confidence. Without this confidence, financial markets would not be able to help entrepreneurs and businesses raise capital and manage risk. When financial markets and key institutions lose public confidence, capital flight ensues and economic activity slows.
And what exactly does the United States have to show for innovation or long-term job growth or scientific breakthroughs after our 14-year nightmare with crypto experimentation and millions of consumers scammed? Congressman Jake Auchincloss (D-MA), a Harvard University and MIT Sloan graduate in economics and finance, summed it up brilliantly during a Dec. 13 House Financial Services Committee hearing. Auchinclos said:
“I want to conclude, really with comments directly to the whole industry. I have long said that I am neither a crypto bull nor a bear. My job as a policymaker is not to come up with new products or technologies, but rather to advance laws and regulations that protect consumers, preserve market integrity, and make the US dollar the currency of world reserve. And I maintain this market and technology independent position. I think it’s the right one. We need strong and clear regulations here from Washington.
“But I want to say that my patience with crypto bulls is running out. It’s been 14 years and the American public has understood lots of promises but seen lots of Ponzi schemes. For crypto, it’s time to put up or shut up. It should be noted that ARK, the innovation investor, identified five general purpose technologies of the future several years ago: DNA sequencing; artificial intelligence; robotics, energy storage and blockchain. And yet, these early four disruptive technologies have already brought game-changing innovations that affect my constituents in everyday life. Blockchain has so far delivered white papers and podcasts on Bitcoin and Doge, NFT, DeFi and more. And everything is interesting; it is even exciting; but none of them has reached the market adequacy of large-scale products. And it’s time for blockchain investors and entrepreneurs to build things that matter or lose more credibility.
Auchincloss is far from the only person who thinks crypto and blockchain are failed experiments or pipe dreams. On June 1 of last year, more than 1,600 scientists and software engineers sent a letter to congressional leaders and committees that oversee US financial markets. Signatories to the letter included employees of Google, Microsoft and Apple as well as respected technology experts with PhDs from Oxford University and MIT. The letter summarized 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 positive financial innovation and are in no way suited to solving the financial problems facing ordinary Americans…
“As software engineers and technologists with deep expertise in our fields, we challenge 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, as they are contrary to its core design. FinTechs that serve the public should always have fraud mitigation mechanisms and allow a human in the loop to reverse transactions; the blockchain allows for neither.
How many millions more US citizens will have their savings hijacked by crypto scammers before Congress takes strong and meaningful action against crypto?
This article first appeared on Wall Street on parade.