Former Obama Chief of Staff Rahm Emanuel cynically advised, “Never let a good crisis go to waste.” The enemies of cryptocurrency have certainly taken this adage to heart. After the collapse of crypto exchange FTX beginning in November 2022, and the subsequent prosecution of Sam Bankman-Fried, many on the Left, and some Republicans, have gone on the offensive against the idea of a store of value or medium of exchange that the government cannot control.
Democrat Senator Elizabeth Warren announced that she was “building an anti-crypto army,” while the Securities and Exchange Commission sued two top cryptocurrency exchanges, Coinbase and Binance. SEC Chairman Gary Gensler (whom critics refer to as Goldman Gary) expressed contempt for crytocurrencies: “We don’t need more digital currency. We already have digital currency. It’s called the U.S. dollar. It’s called the euro. It’s called the yen. They’re all digital right now.” In other words, government currency: good. Decentralized currency: bad.
To understand the animus toward cryptocurrencies, it is best to step back and consider money as it is traditionally understood. Money is a way that value is stored and trade is facilitated. Traditionally a monetary system has involved a central authority – either government or a government-affiliated central bank. Governments want to control money, so they can control the money supply and international exchange rates, and thereby the economy. Cryptocurrencies, on the other hand, use blockchain, a digital ledger, like a public record book, where cryptocurrency transactions are recorded. Blockchain is decentralized; there’s no person or organization in charge. It is open source so when changes are made, the public can freely access and track them. Cryptocurrencies, by disrupting the government monopoly on money, pose a threat to government power and control.
There are at least three reasons why liberty-loving Americans should be skeptical about the war against decentralized digital assets.
First, cryptocurrencies allow people to choose a means of exchange outside traditional government-monopoly money. Governments have political and economic goals outside the desire of the consumer to have a safe and liquid store of value, that may conflict with the interests of the consumer. Often in times of financial uncertainty, assets undergo a “flight to the dollar,” with the assumption that the U.S. dollar is the safest and most stable of currencies. But as the United States pursues ever more reckless budgetary and monetary policies, as national debt passes $34 trillion and interest on the debt exceeds $800 billion per year, many wonder if such stability will last. Cryptocurrencies may offer consumers, if they chose them, another means of exchange.
Second, decentralized currencies may offer financial privacy in a world where privacy is under attack. Consider the case of China, which banned cryptocurrencies in 2021. As part of its broad campaign to increase financial surveillance, it launched a central bank digital currency (CBDC). India likewise is pursuing plans to launch a CBDC “to promote non-anonymity at the individual level” and monitor transactions. In the United States, the Supreme Court ruled decades ago that people cannot reasonably expect privacy when providing information to a bank (U.S. v. Miller, 425 US 435, 1976).
Those wishing to protect their financial privacy might want an alternative to traditional centralized currency. The question we must ask is, why do certain policy makers want the United States to adopt a policy toward decentralized digital assets that is more like China and India?
Finally, at a time of increasing censorship by the federal government, financial privacy becomes especially important. Nicholas Anthony of the Cato Institute, writes, “Across the world, governments freeze the financial accounts of activists and rivals in attempts to eliminate their competition. However, regardless of if an account is frozen in the midst of a toppled regime or in an advanced economy, one thing remains the same: governments turn to private banks to have the accounts frozen. And those banks have to comply.”
As I write this from St. Charles County, Missouri, this is not a theoretical speculation. On April 15, 2021 the Federal Trade Commission announced that it was suing respected St. Charles chiropractor Dr. Eric Nepute for $500 million! In the course of the lawsuit, five bank accounts were frozen; Dr. Nepute was “de-banked,” his practice and business effectively shut down. His transgression? Promoting the idea that vitamin D and zinc supplements might help prevent COVID-19 infection and mortality. That is an idea with considerable support in the medical literature, but one disfavored by the Biden public health regime and Dr. Fauci.
Our neighbors in Canada experienced the weaponization of the financial system against free speech in 2022, when Prime Minister Justin Trudeau invoked the Emergencies Act to freeze the personal bank accounts of truckers and other protesters exercising their rights to protest COVID-19 restrictions.
As privacy is more under attack, and government censorship more prevalent, financial privacy becomes more critical than ever. And non-centralized digital currencies provide an escape from the surveillance state tactics that the federal government is increasingly utilizing.
Decentralized digital assets, or cryptocurrencies, are in their infancy, and developments in technology are rapid. The events surrounding FTX illustrate clearly that cryptocurrencies, like all investments and assets, involve risk, and fraudsters will always be on the prowl for victims. But as Congress and states consider the direction of the law in this area, the question is whether we prefer the course taken by the Chinese Communist Party, or the direction dictated by consumers and freedom of choice. Economic freedom has been a fundamental right secured by our Constitutional Republican form of government. I would counsel the path of Thomas Jefferson and Adam Smith, not Elizabeth Warren and Chairman Xi