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Michael Hiltzik: The crypto scam is on life support. Why are some lawmakers trying to give it CPR?

Michael Hiltzik, Los Angeles Times on

Published in Business News

For crypto, November has been the cruelest month.

Things got started with a blast Nov. 2, when scam artist Sam Bankman-Fried was convicted on seven fraud and conspiracy counts related to his management of the once-upward scuttling crypto exchange FTX.

Matters didn't get any better after that. On Nov. 20, the Securities and Exchange Commission charged the crypto trading platform Kraken with a raft of legal violations.

The SEC alleges that Kraken has been operating simultaneously as a crypto "broker, dealer, exchange, and clearing agency," which present potential conflicts of interest that work against customers' interests.

One day after that, the government dropped a nuclear bomb on the asset class. The Treasury, Commodity Futures Trading Commission and Department of Justice announced a $4-billion settlement of money laundering charges against Binance, the largest crypto platform still standing after the collapse of FTX.

(Interestingly, the one agency not participating in the settlement is the SEC, which makes it seem that its enforcers are intent on pursuing their own case against Binance.)

 

As part of the deal, Binance agreed to cease doing business in the U.S. and employ an independent compliance monitor for five years. Its founder, Changpeng "CZ" Zhao, agreed to step down as chief executive; he pleaded guilty in Seattle federal court to a felony money-laundering charge and agreed to pay a $50-million fine. Federal prosecutors are asking the court to sentence him to 18 months in prison.

Put all that together with a string of prior bankruptcies of crypto firms over the last year or so, and it's impossible to escape the conclusion that as an asset class, crypto is so infected with criminal behavior and so lacking in useful purpose that the only proper regulatory approach is to eradicate it.

(Put simply, crypto is a class of financial instruments, the values of which are set arbitrarily by their own promoters. They don't throw off earnings like stocks or bonds; they don't have industrial or commercial uses like gold or other precious metals; they can't easily be used to buy goods or services, which might help to establish real-world values.)

Crypto adherents plainly fear that that's the direction in which U.S. regulators are heading. Earlier this month, Kristin Smith, a leading crypto lobbyist, asserted that regulators' efforts to define crypto trading firms as "brokers" for tax purposes would "surely spell the near-total collapse of the crypto industry in the United States."

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