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**MARCH 31, 2023**
Kuttner on TAP
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**** Crypto Keeps Taking Hits
And the industry keeps complaining about regulators doing their jobs.
The crypto industry was always a whiz-bang tech "solution" to a
non-problem, unless you were a crook or money launderer trying to hide
transactions. Supposedly, crypto assets would be safe and transparent.
In fact, the risks were deliberately hidden so that insiders could
benefit while naïve suckers took losses.
Crypto schemes fall into two broad categories-unregulated exchanges,
and unregulated securities. As regulators led by the SEC have cracked
down, the industry has gone even faster into free fall. Sam
Bankman-Fried, once the master crypto celebrity, pied piper, and
fraudster, now faces 13 distinct criminal charges.
Meanwhile, even the Commodity Futures Trading Commission, the weakest of
the regulatory agencies and longtime defender of crypto, has been
cracking down. On Monday, the CFTC sued Binance
<[link removed]>,
the world's largest crypto exchange, for failing to register as an
exchange and for violating other regulations. The agency also sued
Binance CEO Changpeng Zhao directly.
These entirely justified regulatory woes, combined with Binance's
ill-timed tactic of charging fees for transactions, have caused
investors to try to get their money out.
**The Wall Street Journal** reports that Binance has experienced $2.1
billion in net outflows over the last seven days.
Crypto defenders have been howling that the regulators have deliberately
taken these actions in order to create "reputational damage" and set off
a self-fulfilling prophecy of investors trying to get what's left of
their money out, thus accelerating crypto's collapse.
If you want to see a classic of that genre, have a look at this whiny
37-page memo
<[link removed]>
by the law firm Cooper & Kirk, which reads as one part conspiracy theory
and one part trolling for business.
The memo advises, "On January 3, 2023, the Federal Reserve Board, the
Federal Deposit Insurance Corporation, and the Office of the Comptroller
of the Currency released a joint statement informing banks that the
three agencies had 'safety and soundness concerns with business models
that are concentrated in crypto-asset-related activities or have
concentrated exposures to the crypto-asset sector.'"
Supposedly, this was intended to scare off investors. But crypto indeed
has safety and soundness problems. If crypto promoters wanted to avoid a
damaging regulatory crackdown and reputational damage, they should have
obeyed the law.
Meanwhile, El Salvador, whose president thought it clever in 2021 to
adopt Bitcoin as its national currency, has been taking losses. A
Bitcoin was trading at around $45,000 when President Nayib Bukele made
Bitcoin legal tender. Today, it trades around $25,000.
As an example of the conflicts of interest that pervade the industry,
The Wall Street Journal recently exposed the role
<[link removed]>
of a New York couple, Max Keiser and Stacy Herbert, who are heavy
investors in crypto, in advising the government of El Salvador to double
down on its crypto bets.
In my other posts and longer articles, I've been writing about the
general failure of the Department of Justice to prosecute corrupt
financial executives
<[link removed]> as
individuals. The crypto frauds are so flagrant that they may finally
alter that pattern.
~ ROBERT KUTTNER
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MANIFOLD
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