The Unintended Consequences of Biden's Cryptocurrency Policy

The claim by former Biden economic advisers Ryan Cummings and Jared Bernstein that the decline of bitcoin's price vindicates the administration's approach to cryptocurrency is based on selective memory. Their opinion piece in the New York Times omits the fact that the Biden administration's crypto policy was not based on a reasoned regulatory framework, but rather on aggressive enforcement that led to the demise of legitimate businesses and the thriving of fraudulent ones like FTX. The authors' praise of the administration's efforts to curb scams and fraud is ironic, given that FTX's founder, Sam Bankman-Fried, was a major Democratic donor who met with senior administration officials while running a massive financial fraud. The administration's strategy of regulation-by-enforcement had a devastating effect on the industry, driving companies offshore or out of business, harming consumers, and stifling American innovation. The 'Operation Choke Point 2.0' episode, in which banks systematically debanked lawful crypto businesses under pressure from federal regulators, is conveniently ignored by the authors. This episode cut off consumers from tools they were using to participate in the financial system without due process or legislative authority. The authors' dismissal of crypto as a 'painfully slow and expensive database' with 'almost no practical use' is also misguided. They acknowledge that crypto is used for international wire transfers, but downplay its significance, despite the fact that stablecoins can execute these transfers in minutes for a fraction of the cost, providing a material financial improvement for families in developing countries. The Biden economists' claim that no major tech firms are using blockchain technology is also incorrect, as companies like Fidelity, JPMorgan, and Visa are actively building on blockchain infrastructure. The op-ed's focus on bitcoin's price decline as a measure of the asset class's worth is analytically flawed, and the authors' labeling of the Bitcoin network as 'slow' ignores its security benefits. The repeated invocation of the straw man of a taxpayer-funded bailout of the crypto industry is also misleading, as no serious policymaker has proposed such a thing. The stablecoin legislation referenced by the authors creates fully reserved payment instruments that are overcollateralized with liquid government bonds, and the Trump administration's bitcoin reserve proposal involves no new taxpayer expenditure. The Biden administration's concern about moral hazard is selectively applied, as evidenced by its guarantee of all deposits when Silicon Valley Bank collapsed in 2023. The op-ed's implication that the crypto industry's political donations are corrupt is also unfair, as the industry's advocacy for favorable regulation through political participation is a cornerstone of American democracy. The Biden administration had a historic opportunity to establish the United States as a global leader in digital asset regulation, but instead chose to weaponize the banking system against a legal industry, creating a lose-lose-lose for innovation, consumer protection, and the US crypto ecosystem.