Imagine Trying to Regulate Crypto
Think about it. FTX collapsed (probable theft/ponzi scheme), therefore calls for regulation increase. Should this become reality, consider the implications to follow, starting with a new government agency; let’s call it the Department of Regulating Cryptocurrencies or DORC for short. One of the first decisions the government must determine is the DORC’s annual expenditures.
Should $100 or $200 million a year be spent regulating cryptocurrencies?
Maybe $200 million is too high! But $100 million is surely too low. An even $150 million makes for a fair compromise. Where will this $150 million in annual expenditure come from?
Either the government will grant the annual funds to the DORC, or the DORC could be self-funded (backstopped by the government) through regulating crypto exchanges or investment companies. Whichever way it is funded, a new tax will be borne by the individual since someone must pay for regulation and the government has no money of its own.
After the office space, staffing requirements, and equipment purchases, the new regulator must get to work. Since the DORC won’t be able to make laws, or enforce existing ones, they’ll only be able to do more superficial things such as create guidelines or set reporting requirements. Various and routine audits or other inspections will be required, with license revocation or penalties issued for those who do not comply.
Whether Congress will get special privileges such as insider trading exemptions will have to be seen. And should a crypto company operate outside the US, it will be nearly impossible for the regulator to have any power, unless capital or even internet controls are put in place to prevent American’s from sending cryptos abroad. Unfortunately the list of questions will go on and on… and on… to ends which will be known to those privileged few sitting atop the organization; success or failure decided by them.
History shows that regulation has done a great job of hindering national prosperity and civil liberties. From America’s Gilded Age to the Progressive Era and through today, regulation has followed the same predictable playbook: Wealthy individuals coerce, lobby, or direct the government to intervene in order to restrict the market, creating high barriers to entry or granting monopoly powers. They market it as “regulation” for protecting the most vulnerable members of society even though it really protects the most powerful.
Dr. Thomas J. DiLorenzo explains it is the political entrepreneur who:
…succeeds primarily by influencing government to subsidize his business or industry, or to enact legislation or regulation that harms his competitors.
This is the antithesis of the market entrepreneur, or capitalist, who:
… succeeds financially by selling a newer, better, or less expensive product on the free market without any government subsidies, direct or indirect.
Yet here we are, with cries to regulate the crypto space. Just a few days ago, in response to the FTX collapse, Reuters reported one expert who said:
Regulators could have posted a lot more guidance for crypto.
And last month, Politico reported Sen. Elizabeth Warren(D) believing:
…that a digital currency bill must be “comprehensive,” covering consumer protections, anti-money laundering rules and climate safeguards for crypto mining.
The link between anti-money laundering, climate safeguards, and consumer protection is a nebulous one at best.
One would think that simple enforcement of property rights law, or not granting (probable) immunity to people like Sam Bankman-Fried, who was working with Congress on crypto legislation, would be enough to keep consumers safe. But this is not the world we live in.
After all is said and done, and once the new regulations are put into place, the next FTX meltdown will occur. Everyone will ask: “Where was the DORC?” facilitating more regulation, which will require more funds for even more regulation. Little to no help would actually be received by the consumer. Yet the optics of crypto regulation, the jobs for lawyers, accountants, and the large bureaucratic structure created may be everlasting.
Although we don’t know when, and we don’t know how, regulation of cryptocurrencies is coming. This is true because Fedcoin is coming; and one of the things we know for certain is that the government hates competition.