The crypto industry was always a whiz-bang tech “solution” to a non-problem, unless you were a crook or launderer trying to hide transactions. Supposedly, crypto assets would be safe and transparent. In fact, the risk was deliberately hidden so that insiders could profit while naive suckers took losses.
Crypto schemes fall into two broad categories – unregulated exchanges and unregulated securities. As regulators led by the SEC have cracked down, the industry has gone even faster into freefall. Sam Bankman-Fried, once the master crypto celebrity, piper and con artist, is now facing 13 different charges.
Meanwhile, even the Commodity Futures Trading Commission, the weakest of the regulatory agencies and longtime defender of crypto, has cracked down. On Monday, the CFTC sued Binance, the world’s largest crypto exchange, for failing to register as an exchange and for violating other rules. The agency also sued Binance CEO Changpeng Zhao directly.
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These completely legitimate regulatory issues, combined with Binance’s poor tactics in charging fees for transactions, have investors scrambling to get their money out. The Wall Street Journal reports that Binance has experienced $2.1 billion in net outflows over the past seven days.
Crypto defenders have howled that regulators have deliberately taken these actions to create “reputational damage” and set in motion a self-fulfilling prophecy of investors trying to get out what’s left of their money, thus hastening the crypto collapse.
If you want to see a classic of that genre, check out this whiny 37-page memo by law firm Cooper & Kirk, which reads like part conspiracy theory and part trolling for business.
The memo advises: “On January 3, 2023, the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a joint statement informing banks that the three agencies had concerns about the safety and soundness of business models that are concentrated in crypto-asset-related activities or have concentrated exposures to the crypto-asset sector.’”
Allegedly, this was intended to scare off investors. But crypto actually has issues with security and soundness. If crypto promoters wanted to avoid damaging regulatory crackdowns and reputational damage, they should have followed the law.
Meanwhile, El Salvador, whose president thought it smart in 2021 to adopt Bitcoin as its national currency, has been losing. One Bitcoin traded for around $45,000 when President Nayib Bukele made Bitcoin legal tender. Today it trades around $25,000.
As an example of the conflicts of interest that characterize the industry, The Wall Street Journal recently revealed the role of a New York couple, Max Keizer and Stacy Herbert, who are heavy crypto investors, in advising the government of El Salvador to double down on its crypto bets.
In my other posts and longer articles, I have written about the general failure of the Department of Justice to prosecute corrupt financial executives as individuals. The crypto scams are so obvious that they may eventually change that pattern.
