Cryptocurrencies were born out of the libertarian dream of a financial system free from government regulation. Bitcoin’s promoters peddle its ability to let us make transactions without dealing with regulated banks, which, they say, we are not supposed to trust.
What crypto players since stripped of their “investments” saw were some operators getting amazingly rich sitting in their shorts and running numbers on their laptops. The less savvy may not have quite understood how this thing worked, but they could bask in the flattery of being called “brave,” per the Super Bowl ads.
The crypto markets crashed amid a sobering string of scandals, crimes and the growing evidence that much of this wealth was basically made-up money. Amid so much suffering, calls have been growing in Washington to impose government oversight on the industry.
The idea is insane.
Nonetheless, the chair of the Securities and Exchange Commission, Gary Gensler, wants to work with Congress to increase his agency’s oversight of what he has accurately calls the “Wild West” of crypto. And Sen. Elizabeth Warren is predictably working on a big digital currency bill that, Politico reports, would cover “consumer protections, anti-money laundering rules and climate safeguards for crypto mining.”
The climate part refers to the coal-fired power plants providing the obscene amount of electricity to mine bitcoin. And the money laundering (and assorted scams) is made possible by another of crypto’s libertarian virtues, anonymity.
Most of the problems Warren cites are being fixed right now through the collapse in crypto values. Many financial experts say the crypto era is now over (although the associated blockchain technology may have good future uses).
When the government gets involved with overseeing investments and the entire category goes south, calls for government bailouts follow. Do the taxpayers really want to be on the hook for invented money? Besides, the biggest crypto selling point is that it isn’t regulated by the government.
But aha, some crypto businesses are now saying, OK, as long as we help write the regs. If that happens, again, heaven help the taxpayers.
One such volunteer was Sam Bankman-Fried, whose $32 billion fortune has vanished along, apparently, with the holdings of depositors at his former crypto empire, FTX. Bankman-Fried cleverly broke with others in his industry by actively calling for regulations. That prompted would-be investors to think: A guy who wants his crypto business regulated is probably on the up-and-up, as opposed to other figures in this admittedly dark business.
Some have likened the crypto craze to the Beanie Baby bubble of the 1990s. Beanie Babies were nothing more than cloth dolls stuffed with beans. They originally sold for $5, but their creator, as Vox reports, “used the illusion of scarcity” to make many think they could be incredibly valuable. People lined up outside Hallmark stores to score a new Beanie Baby release. Especially desirable models traded for thousands of dollars. Naturally, a black market for counterfeit Beanie Babies quickly surfaced.
But step aside Beanie Babies, and make room for CryptoKitties. This is a blockchain-based game that works as follows: You turn over one of the cryptocurrencies in return for pictures of cute little cats. They are marketed as unique kitten pictures, and some have sold for over $100,000. But CryptoKitties are nothing more than digital artwork, which means they have no value other than what you think it is.
Agustin Carstens, a former director at the International Monetary Fund, has called crypto “a combination of a bubble, a Ponzi scheme and an environmental disaster.”
Cryptocurrencies were created to avoid government. Government should avoid cryptocurrencies. Let we who trust banks stroll past the smoking crypto ruins. Not our problem — or shouldn’t be.