The Dark Legacy of Biden's Crypto Policy: Regulation Through Hostility

Ryan Cummings and Jared Bernstein, former economic advisers to the Biden administration, have penned an opinion piece in The New York Times that attempts to vindicate the administration's crypto policy by citing the decline in bitcoin's price. However, their argument relies on selective memory and omits crucial facts. The authors claim that the Biden administration successfully curbed scams and fraud through aggressive regulatory efforts, but this assertion is misleading. The reality is that the administration's approach to regulation was characterized by hostility and a lack of clear rules, which ultimately harmed consumers and stifled American innovation. The growth of FTX, a company that would later become embroiled in one of the largest financial frauds in history, is a prime example of the administration's ineffective regulatory strategy. Sam Bankman-Fried, the founder of FTX, was a prominent Democratic donor and had close ties to senior administration officials, including Gary Gensler, the then-Chair of the Securities and Exchange Commission. The administration's 'regulation-by-enforcement' approach, which favored punishing companies over establishing clear guidelines, had a perverse effect. Legitimate businesses were driven offshore or out of business, while bad actors like Bankman-Fried thrived in the confusion. The authors also conveniently ignore the 'Operation Choke Point 2.0' episode, in which banks, under pressure from federal regulators, systematically debanked lawful crypto businesses without due process or legislative authority. This campaign harmed not only businesses but also ordinary individuals who relied on crypto for financial transactions. The Biden administration's approach to crypto regulation was marked by a lack of transparency and accountability, with policies being implemented without going through the democratic process of notice-and-comment rulemaking. The authors dismiss crypto as a 'painfully slow and expensive database' with limited practical use, but this assessment is misguided. Crypto has enabled fast and low-cost cross-border remittances, which have improved the lives of millions of people, particularly in developing countries. The use of stablecoins on blockchain networks has reduced remittance fees, which average nearly 6.5% globally, to a fraction of the cost. This is a significant financial improvement for families in developing countries. Furthermore, blockchain technology is being used by major companies such as Fidelity, JPMorgan, and Visa to build financial applications. The authors' claim that no 'giant tech firms' are using this technology is incorrect. The op-ed's focus on bitcoin's price decline is also misguided, as short-term price movements do not define the value of an asset class. The Bitcoin network may be slow, but it offers unparalleled security, which is essential for regulators. The authors' repeated invocation of the straw man of a taxpayer-funded bailout of the crypto industry is also unfounded, as no serious policymaker has proposed such a measure. The stablecoin legislation referenced by the authors creates fully reserved payment instruments that are overcollateralized with government bonds, and the Trump administration's bitcoin reserve proposal does not involve new taxpayer expenditure. In contrast, the Biden administration authorized extraordinary measures to guarantee all deposits when Silicon Valley Bank collapsed in 2023, raising concerns about moral hazard. The op-ed's implication that the crypto industry's political donations are corrupt is also unfair, as the industry has been forced to turn to the political process due to a lack of fair hearing from regulators. The Biden administration had a historic opportunity to establish the United States as a leader in digital asset regulation, but instead, it chose to weaponize the banking system against a legal industry, resulting in a lose-lose-lose situation for innovation, consumer protection, and the U.S. crypto ecosystem. Ultimately, it is the Biden administration's crypto critics who owe the public an explanation for their failed policies.