July 12, 2024

Opinion: Crypto scams are rampant. The industry needs regulation.

By Brian Carss

A recent bill passed by the House of Representatives claims to regulate the cryptocurrency industry and protect consumers. But the bill is a Trojan horse designed by an industry flush with cash — the real kind.

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

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

The potential impact should not be taken lightly. The FBI reported in 2023 that over $4 billion was lost due to investment scams. Another recent report showed that more than 90 percent of stablecoin transactions are fake. And the myth that crypto is a means to financial inclusiveness is just that.

If any industry ever needed more oversight, not less, it’s the crypto business. But that’s not what the bill would do.

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

“This bill, if enacted, would close the purported crypto regulatory gap with a wrecking ball instead of a modest patch, damaging financial regulatory safeguards for all Americans, not just crypto consumers,” said Mark Hays, senior policy analyst at Americans for Reform. Hays also fears the bill would also create a roadmap for other industries, namely Wall Street, to evade regulatory oversight.

The outside money involved in getting this legislation passed underscores the ability of a well-heeled industry to corrupt the process. Crypto has spent a shockingly large amount of money lobbying and pushing candidates to embrace their policy goals in exchange for support. Crypto Super PACs have spent over $100 million this cycle.

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

Voters will have to call on Congress to resist the urge 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 crypto investors receive less protection than others? The industry’s record shows that’s not a risk worth taking.

Brian Carss is a communications intern at Americans for Financial Reform and a recent graduate of North Carolina State University.