Where’s crypto’s watchdog?

Register now

It’s not even a month into 2020 and some analysts are already predicting a record-setting year and mass adoption for bitcoin.

All this bullish enthusiasm comes on the heels of an admittedly impressive rally that played out in recent weeks, landing at a 15% month-to-month increase despite some bumps. The excitement is understandable, but old-school bitcoiners have seen similar surges in the past and have learned to go with the flows.

Still, it’s impossible to deny bitcoin’s success story. It was first introduced more than a decade ago to a skeptical marketplace. Now 10 years later, the digital currency can be used to buy anything, from cappuccinos to condos.

There are more than 2,500 digital currencies on the market, and blockchain — the decentralized digital supporting bitcoin and other cryptocurrencies — is a mainstay in corporate America.

Unfortunately, in those same 10 years policymakers have done little to craft any modern regulatory policies to govern digital currencies.

Last year, both the Senate Banking Committee and the House Financial Services Committee took on the topic, again. Senate Banking Committee Chairman Mike Crapo, R-Idaho, said the hearings were overdue because the continued growth of cryptocurrencies is inevitable.

Pity then the hearings were so unproductive. Other than a House bill proposing fiat-pegged stablecoins, such as Facebook’s Libra, to operate in accordance with security regulations dating back to the Great Depression, little was accomplished.

But the hearings did confirm one thing: many lawmakers still harbor deep-seated but irrational fears that normalizing cryptocurrencies will open the flood gates to money laundering, tax evasion, drug trafficking and other illicit activities.

This anxiety can be traced back to at least 2011, when Sen. Chuck Schumer, D-N.Y., first learned of Silk Road, a pitch-black cavern hidden on the dark web where criminals did business using bitcoin. Schumer rallied federal officials and eventually shut down the site.

Still, as much as $2 trillion is laundered globally each year, partly through cryptocurrencies, according to the United Nations.

No one is denying that criminals like bitcoin. But criminals still prefer old-school dollar bills.

As Anthony Pompliano of Morgan Creek Digital told CoinTelegraph : “The choice currency of drug dealers, money launderers and terrorists is still the U.S. dollar.”

Former federal prosecutor Kathryn Haun agrees. Back in 2013, Haun helped launch the first federal digital currency task force. She went on to prosecute the Silk Road case.

In a 2019 interview, she confirmed money launderers still prefer cash, because it is untraceable. On the other hand, she said digital currencies make busting the bad guys easier because “bitcoin is highly traceable.”

Haun and Sen. Crapo both recognize digital currencies are here to stay, and it offers genuine value and transparency. Unfortunately, not enough U.S. lawmakers have experienced this epiphany. They equate crypto with crime and, as a result, no modern regulations have been put in place.

Let’s set aside money laundering for a moment: it’s only a matter of time until a crypto insider-trading scandal erupts, harming investors and further bruising the reputation of cryptocurrencies. Currently, federal laws preventing insider trading among crypto traders are virtually nonexistent.

Other countries such as Japan, Switzerland, Singapore and France have adopted sophisticated crypto regulations that weed out bad actors while attracting forward-thinking entrepreneurs eager to build on the blockchain.

Even China for all its bad press introduced pro-blockchain policies last year to foster growth.

Is China making a play to dominate the world crypto market, as some have suggested? Or does it — like France, Japan and others — simply recognize a new economy when they see it? Either way, China is aggressively facilitating new technologies while U.S. policymakers cling to laws first drafted in the 1930s.

It’s the lack of modern checks and balances that fuels insider trading, money laundering and other crimes. And it’s a lack of modern regulations that hinders the inevitable mainstream adoption of cryptocurrencies.

For reprint and licensing requests for this article, click here.
Cryptocurrencies Bitcoin Law and regulation Digital currencies Fintech Fintech regulations