How the cryptocurrency industry avoids regulations

Photo: Art Rachen

A recent bill passed by the House of Representatives aims to regulate the cryptocurrency industry and protect consumers. But the bill is a Trojan horse designed by the cash industry – a real one of its kind.

The Financial Innovation and Technology for the 21st Century Act is the cryptocurrency industry’s big attempt to curry favor with Washington. Put simply, it would exempt crypto assets and platforms from the definition of “securities,” meaning the Securities and Exchange Commission’s authority to regulate cryptocurrencies would shrink dramatically.

The SEC has been a cornerstone of protecting small investors since the 1930s, when it was created in response to the pre-Depression stock market crash. Instead, the cryptocurrency wants to be regulated by the Commodity Futures Trading Commission, a little-known agency with much less enforcement capacity.

The potential impact should not be underestimated. In 2023, the FBI reported that more than $4 billion was lost to investment fraud. Another recent report found that over 90 percent of stablecoin transactions are fraudulent. And the myth that cryptocurrencies are the solution to financial inclusion is exactly that.

If any industry ever needed more oversight, not less, it is the cryptocurrency industry. But that’s not what the bill would be for.

The crypto industry has consistently misled lawmakers during this process, using obscure crypto industry jargon and exaggerated promises of “innovation” to dress up rules that are simply new ways to avoid effective oversight and legitimize risky industry practices.

“This bill, if passed, would close the alleged crypto regulatory loophole with a wrecking ball instead of a modest patch, harming financial regulatory protections for all Americans, not just cryptocurrency consumers,” said Mark Hays, senior policy analyst at Americans for Reforms. Hays also fears the bill will also create a blueprint for other industries, namely Wall Street, to avoid regulatory oversight.

The outside money involved in passing this legislation highlights the ability of a well-to-do industry to corrupt the process. Crypto has spent a shockingly large amount of money on lobbying and persuading candidates to adopt political goals in exchange for support. Crypto Super PACs have spent over $100 million this cycle.

Lawmakers will no longer have consumers’ best interests in mind if they become slaves to the crypto industry. However, during the recent cryptocurrency vote, 71 Democrats, who are generally more skeptical of cryptocurrencies than their Republican counterparts, joined Republicans in helping the bill pass the House. This shows the power the lobby has over lawmakers despite opposition from consumer and labor groups, state regulators, several federal agencies and the Biden administration.

Voters will need to call on Congress to resist the temptation to fall for the industry’s false claims, flashy public relations and political pressure. Lawmakers should hold the industry to the same standards as everyone else. Why should cryptocurrency investors receive less protection than others? Industry experience shows that it is not worth taking such a risk.