Pure Political Power Versus Safety

As the bloated infrastructure bill makes its way through the US Senate, a donnybrook has ignited about regulation on cryptocurrency.  The initial bill had an amendment that was agreed on by everyone, or so the world thought.  Then uber-Washington Machine politician Democratic Senator Mark Warner of Virginia, and retiring Machine politician Republican Rob Portman threw a wrench into it.  Democratic Senator Kristin Sinema of Arizona also joined in sponsoring the amendment.  The White House and US Treasury signed on to the Warner Amendment.

The competing amendment sponsored by uber-liberal Democratic Senator Ron Wyden of Oregon, RINO Pat Toomey, and Republican (Trumpish) Senator Cynthia Loomis of Wyoming is the one the crypto industry would like to see passed.

Lost in the noise, Republican Senator Ted Cruz of Texas offered up the idea that the US shouldn’t regulate crypto at all. Cruz is probably right if you want to see competition and innovation pick winners and losers in the crypto industry.  Unfortunately, once a pen has been put to paper by a government bureaucrat, there is no shortage of paper or ink.  They are often ideological and driven by their pursuit to control outcomes rather than for the good of the people.  I fought a transaction tax on trading for years and they are still fighting it.

I have some experience with government regulation as it pertains to commodity markets.  I was a part of the CME Board when we engaged in the CFMA in 2000.  At the time, OTC derivatives didn’t have legal certainty.  One judge’s ruling could have blown up a trillion-dollar industry.  As Wendy Gramm said at our board meeting, “the devil is in the details”.  Even when people agree on broad principles, the words used to describe those agreements are very very hard to get to.  In our case, it was a turf battle between competing legislative committees, the SEC, the CFTC, US Treasury, and any regulator that had their finger in finance.  Lots of egos to try and soothe.

Going back further, in 1986 the way commodities were taxed was changed.  Instead of being able to roll profits over as you do in equities, commodities were marked to market on December 31 and you paid any tax owed on gains.  You could also take the losses too.  This caused a huge ripple in the industry.  I had friends that fought the IRS for years and years.  The fight broke them as humans.

The Warner Amendment is not about making crypto more efficient, safer, better or anything like that.  It’s a pure political power play engineered by his constituents and the folks under Janet Yellen at the US Treasury.  They are NOT free-market believers in the least.  They talk a good game about free markets because it sounds nice.  Their actions are anything but and focus on centralizing power in government hands.

The Wyden Amendment isn’t about making things more efficient or safer or better either.  All it does is set up a protective fence around segments of the crypto industry keeping them at arm’s length from the extra costs and burdens government regulation puts on business when it is applied.

People who don’t understand crypto are opining.  They think that the industry wants to avoid taxes, or that the industry wants to enable money laundering, or engage in illicit activities.  That’s just not even close to accurate or true.  Most of the people I have seen opining on things like that, like Matt Stoller, have a focus on bringing more government regulation to everything no matter what industry it is.

Crypto is still in its nascent stages.  One of the best things we did for the internet, and e-commerce, was to keep the government out of it.  The government should never be in the business of picking winners and losers.  That’s exactly what the Warner amendment does.

Call your Senator, tell them to support no regulation at all a la Ted Cruz, or support limited regulation a la Ron Wyden.

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