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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is president of financial reform advocacy group Better Markets
After years of crypto kingpins being handcuffed and sent to prison, numerous spectacular bankruptcies, rampant fraud and manipulation, breathtaking volatility and a long list of lost court cases, the crypto industry is nonetheless riding high in the US.
That’s partly because it has a huge cash pile that it is willing to spend on campaigns to buy the support of politicians who will back its special interest agenda. The crypto industry’s big goal is to pick its own regulator and get a veneer of legitimacy, but not be regulated much at all.
As the Securities and Exchange Commission is a very powerful and effective cop on the crypto beat, the industry sees this regulator as its “mortal enemy”. The crypto crowd wants its political allies to put the smallest, least funded, least capable, and most easily capturable financial regulatory agency in charge of crypto — the Commodity Futures Trading Commission.
With crypto, it is clear from many cases that almost all of the tokens traded comfortably fall within the standard definition of securities and should be regulated by the SEC as such. Those that aren’t securities comfortably fall within the standard definition of commodities and should be regulated by the CFTC as such.
There is really very little dispute about this among people who are not on the payroll of the crypto industry. And that’s also why the SEC is winning almost all the legal cases it is bringing against crypto companies, which argue that most if not all the securities, commodities and banking laws that apply to every other financial firm in America don’t apply to them.
Less than two years after numerous politicians were scrambling to return industry campaign contributions from the fraud-filled FTX, crypto is emboldened to the point it is setting its sights on influencing the Kamala Harris campaign for president. One reported argument is the supposed need to counter Donald Trump’s embrace of crypto.
The crypto industry appears to be making some headway. Officials from the Biden administration and the Harris campaign recently held a conference call with industry figures. Harris should reject the overtures. Here’s why:
First, after years of effort and claims that cryptocurrencies have a real value, there is still no real case to use them for legitimate purposes over existing currencies. They remain the financial product of choice among financial predators, lawbreakers and criminals worldwide. The least harmful use is wild speculation and gambling (as opposed to its other uses for tax evasion, fraud, ransomware, sanctions evasion, terrorist funding, narcotics trafficking, money laundering, etc.).
Second, easing crypto regulation is not among the top concerns of the American people. Contrary to industry propaganda, only about 18mn adult Americans even use or own crypto and that number is declining, according to Federal Reserve survey data.
It really is a very niche issue. Of the 88 per cent of Americans who have heard about crypto, a Pew Research survey last year found a supermajority of 75 per cent are not confident or not very confident about the reliability and safety of cryptocurrencies. Importantly, between 61 and 77 per cent of voters in six key swing states have a negative view of crypto, according to the venture capital firm Digital Currency Group and the polling firm Harris Group (unrelated to the vice-president).
Third, the crypto industry’s extensive lawbreaking rap sheet is at odds with Harris’s long and strong record as a prosecutor who fights for consumer and investor protections and against financial industry lawbreaking. Remember, when she was California’s attorney-general, she was under enormous pressure to accept a global subprime mortgage settlement with Wall Street’s biggest, most powerful banks. Harris was tough, reportedly even saying no to JPMorgan’s chief executive Jamie Dimon over a settlement. That’s not easy. But she held firm and cut a much better deal for California.
Finally, communities of colour are disproportionately victims of crypto rip-offs. Yes, these communities are rightly sceptical of the traditional financial system that has excluded, discriminated and exploited them for so long. Unfortunately, that makes them a target for the crypto industry, which pitches bogus wealth-building opportunities. A 2021 survey by the social science research institute NORC at the University of Chicago estimated 44 per cent of crypto traders were not white.
Harris has a lot to do in the lead-up to the US elections. Caving to threats from the crypto industry should not be one of them.