This week, I have had the honor of being quoted in a great article on cryptocurrency trends and regulation in the Washington Examiner and having a letter of mine on the topic published in the Wall Street Journal. I’d like to summarize and elaborate on my comments here.
The Examiner piece was an in-depth article by Zachary Halaschak on the factors behind the surge in the prices of Bitcoin, Ethereum, and other cryptocurrencies since the beginning of 2023, after a terrible year for crypto in 2022 that ended with the implosion of FTX. As the article notes, both Bitcoin and Ethereum have risen by more than 30 percent since the start of the year. The reporter quotes me and my former CEI colleague Jim Harper—now a nonresident senior fellow at the American Enterprise Institute—on some of the reasons for crypto’s newfound momentum
In the piece, I noted that one of the probable factors for crypto’s new rise was Rep. Patrick McHenry (R-NC) becoming chairman of the House Financial Services Committee as a result of the GOP takeover of the House. McHenry has made important statements that crypto, as with any other industry, should not be punished as a whole for its bad actors. And it’s a good bet that he would block any proposed legislation from the Biden administration or Senate Banking Committee Chairman Sherrod Brown (D-OH)—who has said he is open to banning crypto—that would be particularly destructive for the industry or crypto holders.
I also said that the swift arrest and indictment of disgraced former FTX CEO Sam Bankman-Fried gave confidence to participants in financial markets that the crypto sector is not exempt from laws against fraud. I said in the article, “Despite the sort of the myth of nonregulation or bitcoin being exempt from every law, [the government] is showing that crypto, like any other type of fraud … can be punished by a lot of the laws we have, including, say, wire fraud.”
Enforcing fraud laws against FTX—and when the government could have and should have done so—was also the subject of my letter to The Wall Street Journal, in which I note that, while the coauthors of the Journal op-ed to which I was replying were “correct to call out the SEC for failing to police FTX before its implosion,” they were “wrong to say that the SEC needed to directly regulate cryptocurrency exchanges to do so.”
I pointed out in the letter (as I had in a previous CEI blog post) that “the SEC doesn’t need authority over cryptocurrency as ‘securities’ to make a finding that a crypto company is defrauding its shareholders.” I described how before the implosion, the SEC could have opened up an investigation based on public warnings of FTX fraud against its shareholders, and referred findings of fraud against FTX customers to government entities such as the Department of Justice that have been given jurisdiction by Congress to enforce general laws against fraud.
I noted that, ironically, “this is close to what happened” after FTX imploded, in that “the SEC’s civil lawsuit against Sam Bankman-Fried is purely about shareholder fraud, while the Justice Department indictment made general-fraud charges that include fraud against FTX customers.” I concluded the letter with the admonition that “coordination of agencies acting within their respective spheres is the best way for government to stop fraud without harming legitimate entrepreneurs and raising costs for investors and consumers.”