Legislators come and go, but some things stick around, despite the best attempts to make a change. Enter center stage Sen. Elizabeth Warren and colleagues—as well as a few academics in the likes of Robert Manning—who've made headlines the last month scolding
cryptocurrency and the dangers it poses to the financial system and cybersecurity. The arguments, however tired they are, echo in a chamber void of any real audience beyond the diehard anti-crypto traditionalists. The truth is, the cryptocurrency industry
is here to stay. The time to ban it has left the station, and these energies calling for heavy regulation or its banning could be spent elsewhere.
For years now, the anti-crypto crowd has made the same arguments for quite a while. Anti-crypto lawmakers have argued that cryptocurrency disrupts financial markets, with too much uncertainty and no market mechanisms to protect investors. Concerns like
Warren's, declare the potential for a massive crash, analogously to the 2008 savings and loans crash that left millions financially stricken. Moreover, it's been also argued that cryptocurrencies are problematic for central banks to maintain control over financial
systems. But so far, despite original intent, cryptocurrencies have been underutilized as currencies, and rather as store-of-value assets to hedge against inflation, not to challenge fiat currency.
The second major argument against the proliferation of cryptocurrencies and their supporting markets is the cybersecurity matter. Most notably, Manning
argued in late July that cybercriminals are using cryptocurrency and asking for it as ransom after cyberattacks, thus requiring governments to take action by creating their own traceable CBDC and collectively working to ban cryptocurrencies—even at a U.N.
Over on Capitol Hill, the new bipartisan infrastructure bill in Congress would essentially force anyone who is a "broker"—a poorly defined term that would imply anyone who is involved in facilitating a crypto transaction, including miners and even a user
who sent another user payment in crypto—to report their "customer's" info to the IRS.
These actions or objections, while well-intentioned, are misunderstanding the market and where it is truly headed. Warren and her colleagues miss that although regulation to an extent could secure users and their digital assets, overregulation would not.
Missteps in regulation, such as the latest infrastructure bill, could prove disastrous. Kristin Smith, the executive director of the Blockchain Association,
told CNBC the bill's language would "detract people from wanting to invest or participate in crypto networks in the United States." Jake Chervinsky, an experienced lawyer and counsel at DeFi company "Compound Labs" also explained to CNBC that most crypto
companies would not be able to comply, because they would not be able to gain any access to the required information. What about companies like Microsoft, Burger King, Shopify, Rakuten, and sports teams like the Miami Dolphins, all of whom accept bitcoin payments?
Would they find themselves in rough waters with U.S. regulators, thereby putting an end to accepting bitcoin?
The time for overregulation and even banning is far too late. The market is just too big already. The top three cryptocurrencies on CoinMarketCap alone (ranked by market capitalization) total $1.3 trillion, composing around 65 percent of the total market
cap of all cryptocurrencies. Pre-pandemic, the total market cap sat around just $114 billion. And demand will only keep rising as retail investors and funds hedge against anticipated post-pandemic inflation. In the U.S., many Americans have jumped on the bandwagon
already, with one fifth owning some cryptocurrency—up from just under eight percent in 2018, according to a Finder
Even at the higher level, key financial institutions have given digital assets some thought and acknowledged their utility. The United States Federal Reserve and Bank of England have expressed either understanding of crypto's potential or called it "revolutionizing."
As for Manning's cybersecurity camp, arguing against cryptocurrencies on the basis of hackers demanding it as ransom is not a new phenomenon. Cybercriminals have demanded different types of ransom for years, including fiat currencies, none of which were
called upon to be banned. If anything, a Chainalysis
report showed that illicit criminal activity with crypto had declined from 2.1 percent to 0.34 percent between 2019 and 2020.
Rather than concentrate on shortcomings of crypto and search for justification to outlaw its utilization or overregulate, legislators and regulators would be better served concentrating on how to better protect users and make it safer to get in.
U.S. authorities should focus on improving KYC regulations for exchanges, market manipulations from influencers, and the designation of ICOs. These should be compounded by promoting legislation that encourages digital asset education and security provisions
inside the cryptosphere. Essentially, the end objective should be to bring together centralized finance and decentralization, via digital assets, in a way that is simple and understandable to the majority of the population.
Following El Salvador's example, legislators should ease the introduction of cryptocurrencies like bitcoin as legal tender into the public, adding parameters as necessary to protect users, without over-regulating and stifling the market.
Digital assets might be in their infancy and volatile, but that doesn't mean it's time to put the clamps on or ban them. Like everything else, regulation that comes too soon can greatly hinder the growth of a new industry. Although regulation is necessary
to a certain degree, it must be carefully applied. Either way, cryptocurrency is here to stay. It's time to concentrate on making it safer for retail investors and bolster the ecosystem.