Elizabeth Warren and the Mysticism of the Crypto-Skeptics

Hello readers, David Z. Morris here, pleased to be filling in for Michael this Friday.

This week saw the unveiling of the Biden administration’s promised executive order on cryptocurrency regulation. 

By most accounts, the order appears to be cautious and balanced, largely a call for more research and debate toward a coordinated crypto strategy across U.S. agencies and regulators.

There are a lot of unanswered questions about what a more centralized approach would mean, given that U.S. financial regulators are engaged in a constant internecine cold war for jurisdictional power. 

But a simple executive demand for clarity feels welcome after nearly a decade during which regulators targeted individual crypto entities for enforcement, without doing much to update or clarify the rules of the road for a radically new technology.

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The order also, optimistically, arrives at a moment when the public perception of crypto is primed for a major shift. Russian President  Vladimir Putin’s barbaric invasion of Ukraine has showcased in quite clear terms the positive utility of open finance, in the form of close to $100 million in cryptocurrency donated to Ukrainian defense from around the world. 

Those tokens arrived much faster than some aid from allied governments and went directly to supplies like bulletproof vests and rations for Ukrainian fighters.

Meanwhile, there has been broad consensus among experts that blockchain networks don’t provide a meaningful way for Putin’s Russia to evade economic sanctions intended to punish Russia for the invasion. That’s partly for reasons of scale – even a midsized economy like Russia’s is too big to entirely run on crypto today – but mostly because of crypto’s inherent traceability.

These real-world events undermine the dark narrative that has shadowed cryptocurrency over the years and that seems to inform many regulators now. Early association with darknet markets like Silk Road, and spectacular instances like its use by North Korean ransomware attackers, created an early default consensus that crypto is useful primarily for bad actors. 

Some political theorists were also very quick to extrapolate from the libertarian values of its cypherpunk founders to argue that cryptocurrency was inherently antisocial.

But the real impacts of crypto in Ukraine contradict that story. The preponderance of benefits, at least in this moment, seems to be accruing to the good guys and helping bind together a global pro-democracy community in ways that would be impossible if it didn’t exist.

Unfortunately, as the development of the Biden crypto framework ramps up, some high-profile U.S. officials still do not seem to be paying attention to this real-world complexity. 

Instead, they are hanging on ferociously to early interpretations of cryptocurrency as inherently criminal, illicit or anti-democratic. 

Two notable examples of that are Sen. Elizabeth Warren (D-Mass.) and, at least in one strange bit of recent testimony, Federal Reserve Chairman Jerome Powell.

Warren is a longtime and almost mechanistically predictable opponent of cryptocurrency. 

Now, in the teeth of Russian aggression and a humanitarian crisis on the ground, Warren’s focus has been proposed legislation to prevent crypto-based sanctions evasion – despite assurances from within Treasury itself that further rules aren’t necessary.

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