Never let a good (crypto) crisis go to waste.

How some regulators are using the recent crypto crash to target an entire ecosystem.

Since the beginning of 2022, every major crypto asset has crashed. Bitcoin’s value has halved, Ethereum is down 70%, and many NFT collections are now worthless. If investors are mourning the end of the bull market, some “cryptophobes” are rejoicing. The recent downturn in the crypto markets is a boon opportunity for anyone opposing cryptocurrencies.

This is not the first time that opponents of cryptocurrencies have used current events to depict the entire ecosystem in a bad light.

With the creation of the Silk Road, cryptocurrencies were supposed to fuel organized crime. It turns out that only 0.15% of crypto transactions are linked to criminal activities (less than the amount in dollars!). More recently, Russia was supposed to escape sanctions thanks to cryptocurrencies, which never happened. With this new crash, regulations are once again on the horizon.

Regulations are coming

All over the world, new crypto regulations are being prepared with different degrees of care and diligence. In the West, the most aggressive bills come from the European Union (EU).

Christine Lagarde — President of the European Central Bank — a vocal critic of cryptocurrencies, has called for global regulations against the industry. She called crypto “worthless” and wants to end what she sees as the “wild west.” One can hope that she will be as successful at targeting cryptocurrencies as she was as secretary of finances in France (the country experienced one of its worst recessions during her four-year term!).

Recently, a political agreement has been reached in the European Union’s parliament to pass two new regulations:

• TFR (Transfert of Funds Regulation): the main goal here is the “traceability” of crypto assets — a fancy word for surveillance. As usual, the excuse remains the same: “To curb the use of crypto for money laundering and terrorism financing.” Even though this almost never happens. Every transfer over 1,000 euros between a wallet and an exchange, as well as every transfer among exchanges, will require a KYC. Only transfers among wallets remain safe (let’s not forget, not your wallet, not your crypto!).
• MiCA (Market in Crypto Assets): here the goal is to create one harmonized crypto regulation in Europe. With stringent rules against Stablecoins, this move will also establish a public register for non-compliant exchanges, with whom EU exchanges will not be allowed to trade.

In other words, by overregulating the industry, the EU just shot itself in the foot (again!). Instead of embracing a new technology, the EU is sending a very negative signal to innovators and investors. It may not be a coincidence that none of the top 100 European companies is less than 40 years old!

In the United States, the Securities and Exchange Commission also wants to start cracking down aggressively on the ecosystem. In a recent press release, the SEC announced that it would be increasing the number of agents who watch crypto companies.

In Congress, two senators, Democrat Kristen Gillibrand, and Republican Cynthia Lummis, unveiled a new bill that seems to go in the right direction — laying out a framework for regulating the crypto industry and defining most cryptocurrencies as commodities.

This regulation includes tax requirements for various digital assets, a stricter legal framework for Stablecoins (which is understandable after the Terra debacle), and cybersecurity provisions.

The US seems to have adopted a more pragmatic approach compared to the EU, but only the next few years will tell which direction the country will take, especially since some voices are calling for stricter rules.

Some are even calling for an outright ban of cryptocurrencies.

Although only China has banned the possession of cryptocurrencies (together with a few small, corrupted countries), some voices in the West are pushing for crypto prohibition.

For instance, Lee Reiners, a former Federal Reserve regulator and Duke University professor, is calling for crypto to be banned, arguing that “blockchain’s not really better at anything.” In a recent opinion piece in The Wall Street Journal, he adds that “ransomware attacks have exploded with the emergence of cryptocurrency.”

Kenneth Rogoff, a professor of economics and public policy at Harvard University and a former chief economist of the International Monetary Fund (which used to be led by Christine Lagarde), has gone as far as comparing investing in crypto to “investing in conflict diamonds.” He ignores the opportunities that cryptocurrencies could bring to countries experiencing hyper corruption and hyperinflation, such as Venezuela or Zimbabwe. The ban on cryptocurrencies established in Algeria in 2018 did not help the failed state improve its economy.

For those who think that these bans could only happen in authoritarian countries, let’s not forget that there is a historical precedent with FDR’s executive order 6102, which banned the possession of gold in the United States. We could thus definitely see a ban on possessing, mining, or exchanges.

While these criticisms cannot be just pushed aside (“have fun staying poor” is not a good counterargument!), most of these anti-crypto intellectuals argue that governments are doing a good job and that cryptocurrencies are only vanity projects. They fail to understand the real reasons behind their creation and why such a big section of the world’s population wants them.

Why are cryptocurrencies worth fighting for?

Ironically, these targeted attacks against the blockchain ecosystem could be an opportunity. Some may have lost sight of the real reasons behind the emergence of cryptocurrencies, which ensure our freedom to transact.

This freedom may be undermined by many players — corrupt or authoritarian governments who decide to seize your assets if you do not conform to their ideology, lacking banking systems (it is no coincidence that Bitcoin was created during the 2008 financial crisis), or incompetent traditional institutions who seem unable to understand what a balanced budget is or how to curb high inflation.

We may be experiencing an authoritarian moment in the West when government incompetence leads to intervention to fix governments’ own mistakes, which leads to more misguided intervention in a never-ending spiral.

Bitcoin and crypto, in general, prevent that. In the words of Balaji Srinivasan, Bitcoin is “seizure-resistant.” It is also censorship-resistant and allows citizens to take back control of their assets.

To conclude, we need to understand where these threatening regulations are coming from. Every country is different, and some rules are well-intentioned and should be welcomed. But most of them are not about consumer protection — they’re about power. These regulations attack what makes cryptocurrencies independent of government control.

Since the beginning of civilization, the power to coin money has been a government monopoly, and nobody likes to lose power. Let’s all be vigilant. Many regulators will try to seize the opportunity to strike cryptocurrencies during this bear market. But we should not forget that crypto is the last line of financial defense for powerless people.

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