In recent years, the federal government has aggressively targeted crypto firms, projects, and exchanges. Attacks on the industry have come from all directions, including lawmakers, bank regulators, the Treasury Department, the Department of Justice (DOJ), and the Securities and Exchange Commission (SEC). Representative Brad Sherman says, “Bitcoin, it’s not just for narco-terrorists anymore . . . it’s for tax evaders too.”1 According to SEC Chairman Gary Gensler, “The crypto industry’s record of failures, frauds, and bankruptcies is . . . because many players in the crypto industry don’t play by the rules.”2
Listening to politicians and the mainstream media, one might think that the crypto industry deserves this. Yes, the industry has its share of scammers and fraudsters. FTX founder Sam Bankman-Fried, for example, diverted billions from his exchange’s customers to cover risky investments at his hedge fund, Alameda Research, leading to FTX’s collapse. Convicted on several counts of fraud and conspiracy, he was sentenced to twenty-five years in prison. The government, however, isn’t just going after fraudsters such as Bankman-Fried (as it should); it has declared war on the entire industry.
Why should we care?
One need not know the ins and outs of crypto assets (digital tokens, currencies, stablecoins), decentralized finance (DeFi), decentralized physical infrastructure networks (DePIN), or blockchains—the technology on which crypto assets are based—to know that these technologies are integral to what promises to be the next generation of the internet: Web3.3 In the current version of the internet, Web 2.0, the most used services and platforms are centralized, meaning controlled by a handful of big tech firms. Although these firms deserve immense credit for creating extraordinary search engines, cloud services, social media platforms, and more, Web 2.0 presents many challenges. Users often lack control of their data and ownership of the content they create. Security vulnerabilities and single points of failure, moreover, are inevitable with centralized data storage, leading to hacks, cyberattacks, and other disruptions. Web 2.0 is also easy for governments to surveil, control, and censor.
The pioneers of Web3 envision a decentralized internet that solves these challenges, an internet that is more open, secure, and private. Users will control their data, content, and interactions without needing permission from third parties. The economic value of open-source platforms for gaming, social media, and more will be represented by tradable, digital tokens. Such tokens and other crypto assets will enable their owners to make low-cost, peer-to-peer payments—as well as trade, lend, and borrow—without traditional intermediaries, such as banks.
Representative Ro Khanna, whose district includes Silicon Valley, says, “Web 3.0 will lead to unprecedented job growth and empower Americans to have economic ownership over the internet.”4 This is an exciting prospect that represents what is great about entrepreneurship: innovation, economic dynamism, and disruptive new industries. All this rests on protecting the individual’s right to be free—free to try something different, free to envision a better future, and free to turn that vision into a reality.
American entrepreneurs could (and should) easily lead the crypto industry, building the infrastructure for Web3. But if the government wins its war on crypto, violating the rights of users, investors, and creators, it will drive the industry offshore—and all of us will be harmed because of it. . . .
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Endnotes
1. Brad Sherman (@BradSherman), “Perhaps you can make money and hurt your country at the same time—and perhaps some Members of Congress will applaud your efforts. Here’s the real picture.” X, April 15, 2021, https://x.com/BradSherman/status/1382871291443699714.
2. Gary Gensler, “Statement on the Financial Innovation and Technology for the 21st Century Act,” U.S. Securities and Exchange Commission, May 22, 2024, https://www.sec.gov/news/statement/gensler-21st-century-act-05222024.
3. “What Is Web3?” Ethereum, March 1, 2024, https://ethereum.org/en/web3/.
4. Ro Khanna, “Khanna, McHenry Lead Bipartisan Legislative Fix for New Digital Asset Reporting Requirements,” U.S. House of Representatives, November 18, 2021, https://khanna.house.gov/media/press-releases/khanna-mchenry-lead-bipartisan-legislative-fix-new-digital-asset-reporting.
5. David H. Thompson et al., “Operation Choke Point 2.0: The Federal Bank Regulators Come for Crypto,” Cooper & Kirk, https://www.cooperkirk.com/wp-content/uploads/2023/03/Operation-Choke-Point-2.0.pdf (accessed July 24, 2024).
6. Nic Carter, “Operation Choke Point 2.0 is Underway, and Crypto is in Its Crosshairs,” Pirate Wires, February 8, 2023, https://www.piratewires.com/p/crypto-choke-point.
7. “The Department of Justice’s ‘Operation Choke Point’: Illegally Choking Off Legitimate Businesses?” U.S. House of Representatives Committee on Oversight and Government Reform, May 29, 2014, http://oversight.house.gov/wp-content/uploads/2014/05/Staff-Report-Operation-Choke-Point1.pdf.
8. “Joint Statement on Crypto-Asset Risks to Banking Organizations,” Federal Deposit Insurance Corporation, January 3, 2023, https://www.fdic.gov/news/press-releases/2023/pr23002a.pdf.
9. Brian Deese et al., “The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks,” White House National Economic Council, January 27, 2023, https://www.whitehouse.gov/nec/briefing-room/2023/01/27/the-administrations-roadmap-to-mitigate-cryptocurrencies-risks/.
10. Nic Carter, “Did the Government Start a Global Financial Crisis in an Attempt to Destroy Crypto?” Pirate Wires, March 23, 2023, https://www.piratewires.com/p/2023-banking-crisis.
11. Jen Wieczner, “Barney Frank Talks More about the Surprise Shuttering of Signature Bank,” Intelligencer, March 15, 2023, https://nymag.com/intelligencer/2023/03/barney-frank-says-more-shuttering-signature-bank.html.
12. Wieczner, “Barney Frank Talks More about the Surprise Shuttering of Signature Bank.”
13. David French and Pete Schroeder, “Exclusive: U.S. Regulator Eyes Friday Bids for SVB, Signature Bank—Sources,” Reuters, March 16, 2023, https://www.reuters.com/business/finance/us-regulator-taps-piper-sandler-new-bid-sell-silicon-valley-bank-sources-2023-03-15/.
14. Leo Jakobson, “Signature’s Seized Assets Sold without Crypto—Here’s Why It Matters,” Yahoo Finance, March 21, 2023, https://finance.yahoo.com/news/signatures-seized-assets-sold-without-105833351.html.
15. Tom Emmer (@GOPMajorityWhip), “Today, I sent a letter to FDIC Chairman Gruenberg regarding reports that the FDIC is weaponizing recent instability in the banking sector to purge legal crypto . . . ,” X, March 15, 2023, https://x.com/GOPMajorityWhip/status/1636008298481680384.
16. “SEC Cryptocurrency Enforcement,” Cornerstone Research, January 24, 2024, https://www.cornerstone.com/wp-content/uploads/2024/01/SEC-Cryptocurrency-Enforcement-2023-Update.pdf.
17. “The Future of Digital Assets: Providing Clarity for Digital Asset Spot Markets,” hearing before the Committee on Agriculture House of Representatives, June 6, 2023, https://www.govinfo.gov/content/pkg/CHRG-118hhrg53287/pdf/CHRG-118hhrg53287.pdf.
18. Paul Grewal, “We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead,” Coinbase, March 22, 2023, https://www.coinbase.com/blog/we-asked-the-sec-for-reasonable-crypto-rules-for-americans-we-got-legal.
19. “SEC’s Gary Gensler on Kraken staking settlement: Other crypto platforms should take note of this,” CNBC, February 10, 2023, https://www.cnbc.com/video/2023/02/10/short-sec-chair-gensler-heres-why-we-cracked-down-on-kraken.html.
20. Jesse Powell (@jespow), “Oh man, all I had to do was fill out a form on a website and tell people that staking rewards come from staking? Wish I’d seen this video before paying a $30m . . . ,” X, February 10, 2023, https://x.com/jespow/status/1624177588074848256.
21. Jesse Powell (@jespow), “Message is clear: $30m buys you about 10 months before the SEC comes around to extort you again. Lawyers can do a lot with $30m but the SEC knows that a real . . .” X, November 20, 2023, https://x.com/jespow/status/1726794688433369290.
22. Brayden Lindrea, “SEC hit with sanctions for its ‘gross abuse of power’ in Debt Box case,” Cointelegraph, March 18, 2024, https://cointelegraph.com/news/sec-s-conduct-in-debtbox-case-constituted-a-gross-abuse-of-power; Securities and Exchange Commission v. Digital Licensing Inc, et al., Case No. 2:23-cv-00482-RJS-DBP (United States District Court for the District of Utah 2024), https://storage.courtlistener.com/recap/gov.uscourts.utd.141167/gov.uscourts.utd.141167.313.0_22.pdf and https://storage.courtlistener.com/recap/gov.uscourts.utd.141167/gov.uscourts.utd.141167.312.0.pdf.
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24. Peirce and Uyeda, “On Today’s Episode of As the Crypto World Turns.”
25. Austin Campbell (@CampbellJAustin), “If you think this is a joke, I have been in a meeting with the SEC where almost exactly this happened. $100s of millions of investment money and tons of high . . . ,” X, March 6, 2024, https://x.com/CampbellJAustin/status/1765428035132784973.
26. Jason Gottlieb (@ohaiom), “This dissent from Commissioners @HesterPeirce and Mark Uyeda is absolutely right—including their ‘script’ for what happens in ‘I’d like to register’ meetings . . . ,” X, March 6, 2024, https://x.com/ohaiom/status/1765391859226919375.
27. Peirce and Uyeda, “On Today’s Episode of As the Crypto World Turns.”
28. Mark Cuban (@mcuban), “This is how @GaryGensler and the SEC are trying to destroy the crypto industry. They make it impossible to comply with registration rules. Since the SEC decided . . . ,” X, May 11, 2024, https://x.com/mcuban/status/1789297645653037194.
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30. Economic Liberties, “Confronting the Crypto Challenge: Learning from a Meltdown Featuring Senator Elizabeth Warren,” YouTube, 11:05–11:45, January 25, 2023, https://youtu.be/3OnR2qHvmVA?t=665.
31. Elizabeth Warren (@ewarren), “I’m in this fight to put our government on the side of working families. Join our re-election campaign today: https://ewar.ren/qr7,” X, March 29, 2023, https://x.com/ewarren/status/1641138829162577928.
32. “Warren Expands Coalition of Banking Committee Support for Bill Cracking Down on Crypto’s Use in Money Laundering, Drug Trafficking, Sanctions Evasion,” U.S. Senate, December 11, 2023, https://www.warren.senate.gov/newsroom/press-releases/warren-expands-coalition-of-banking-committee-support-for-bill-cracking-down-on-cryptos-use-in-money-laundering-drug-trafficking-sanctions-evasion.
33. Neeraj K. Agrawal (@NeerajKA), “The Digital Asset Anti-Money Laundering Act is a direct attack on technological progress and also a direct attack on our personal privacy and autonomy. Make no . . .” X, December 11, 2023, https://x.com/NeerajKA/status/1734305528187109584?ref_src=twsrc%5Etfw.
34. “Warren, Marshall, Casten, 100+ Lawmakers Ask Biden Administration to Address Crypto-Financed Terrorism after Reports of Hamas Raising Millions in Crypto to Fund Operations,” U.S. Senate, October 18, 2023, https://www.warren.senate.gov/oversight/letters/warren-marshall-casten-100-lawmakers-ask-biden-administration-to-address-crypto-financed-terrorism-after-reports-of-hamas-raising-millions-in-crypto-to-fund-operations.
35. Angus Berwick and Ian Talley, “Hamas Militants behind Israel Attack Raised Millions in Crypto,” Wall Street Journal, October 10, 2023, https://www.wsj.com/world/middle-east/militants-behind-israel-attack-raised-millions-in-crypto-b9134b7a.
36. Jeff John Roberts, “The Wall Street Journal and Liz Warren double down on the Hamas crypto canard,” Fortune, October 26, 2023, https://fortune.com/crypto/2023/10/26/elliptic-calls-out-wall-street-journal-elizabeth-warren-hamas-crypto-numbers.
37. “Setting the record straight on crypto crowdfunding by Hamas,” Elliptic, October 25, 2023, https://www.elliptic.co/blog/setting-the-record-straight-on-crypto-crowdfunding-by-hamas.
38. Emanuel Fabian, “Hamas suspends Bitcoin fundraising, citing ‘hostile’ activity against donors,” Times of Israel, April 29, 2023, https://www.timesofisrael.com/hamas-suspends-bitcoin-fundraising-citing-hostile-activity-against-donors.
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40. Jeff Stein (@JStein_WaPo), “Scoop: Treasury Secretary Janet Yellen has been privately lobbying lawmakers against Wyden-Lummis-Toomey crypto amendment, as WH seeks to fend off push to limit . . . ,” X, August 6, 2021, https://x.com/JStein_WaPo/status/1423615299564228610.
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