Dear Senator Warren,
The FTX melee has infused crypto regulation efforts with new life. Politicians pounced at the opportunity, including you. The bill you’ve recently introduced requires the U.S. Treasury Secretary to create a rule disallowing financial institutions from transacting with self-custody wallets, citing the FTX debacle. It was a wholly inappropriate response to the failure of a centralized entity already regulated by a government. Your shotgun approach to regulation is dangerous to innovation in the United States, and particularly Main Street.
Thankfully, some U.S. lawmakers understand not only crypto but also the foundation of freedom upon which the United States was founded. Representative Warren Davidson (R-OH) knew it was only a matter of time before someone like you would try to compel the Treasury Department to interfere with consumers’ right to self-custody of their digital assets — as Rep. Davidson puts it, “to own and possess private property.” Therefore, he introduced last February the Keep Your Coins Act, designed to preserve Americans’ right to privacy in transacting with crypto assets.
The bill would prohibit any federal agency from implementing a rule that would impair a person’s ability to act as a self-custodian, and thus their ability to conduct peer-to-peer transactions without the need for a third-party intermediary, such as FTX.
“As the federal government seeks more regulation of the crypto ecosystem, it seeks to impose more surveillance over American citizens,” stated Rep. Davidson after introducing the bill. “It’s vital that we preserve the attributes of cash transactions by protecting the permissionless nature of cash. No third party should be required for two people (or companies) to use money as a means of exchange, store of value, and record of account. This bill ensures that individuals will always have the ability to transact without any intermediaries.”
The FTX collapse makes it obvious why self-custody should be protected. Sam Bankman-Fried convinced people to send their digital assets to FTX by positioning the company as a massive financial institution with lavish sponsorships and spokespersons. The illusion Bankman-Fried cultivated around FTX fostered trust. Blockchains, in the vision of Bitcoin creator Satoshi Nakamoto, are trustless.
Bankman-Fried took customers’ digital assets at FTX and put them under the control of Alameda Research, the hedge fund he founded that was the trading arm of FTX. He created FTT, FTX’s native token, to use as collateral on loans from FTX to Alameda. He leveraged Alameda’s assets to irresponsible levels. Bankman-Fried’s actions are the same old criminality seen over and over again in traditional finance, and they were made possible because people sent him their money to act as a third-party intermediary. To then submit a bill in the aftermath regulating self-custody makes little logical sense.
FTX customers who transferred their digital assets from FTX into their own self-custody wallets did not lose money to Bankman-Fried’s fraud. You want to strip consumers of the only sound protection against the failure of any third-party intermediary.
FTX is the exact opposite of Nakamoto’s blockchain and original conception of cryptocurrency. “Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments,” reads the opening lines of the white paper authored by Bitcoin’s pseudonymous inventor. “While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust-based model.” Bankman-Fried exploited the flaws in the traditional financial system, not blockchain.
You also argued another appropriate response to the FTX collapse would be, ultimately, for the government to stop people from owning Bitcoin in their retirement accounts. In a letter to Fidelity Investments, you and two of your fellow Senate Democrats — Sens. Dick Durbin (D-Ill.) and Tina Smith (D-Minn.) — argued for a moratorium on people having the choice to allocate Bitcoins into their retirement accounts.
Fidelity, which only recently allowed customers to allocate part of their contributions to Bitcoin, isn’t forcing anyone to put retirement funds into bitcoin. Rather, it’s merely giving them the choice to add Bitcoin exposure alongside their stocks, bonds, precious metals, index funds, emerging markets, and other sometimes risky and volatile investments. Choice. That’s what Bitcoin and other cryptocurrencies are all about. Preventing people from owning Bitcoin in their retirement funds won’t stop a future FTX.
During the 2008 financial crisis, you were viewed as a champion of the people against the banking system, against the Wells Fargos, against the Chases, against the HSBCs of the world. Bitcoin and other cryptocurrencies are a solution to the banking oligopolies’ predatory ways. It’s one way for people to exit the banking system, take custody of their own money, and not worry about fees and banks taking advantage of them.
Your open hostility towards financial freedom goes against American values while also disempowering consumers, leaving them at the mercy of the financial fraudsters you purport to fight. A more constitutional approach would presumably foster innovation. The U.S. state of Wyoming has gained notoriety worldwide for promulgating measured blockchain legislation. Perhaps the rest of America — as well as regulators elsewhere in the world, including Europe and Asia — could learn from the so-called “Cowboy State.”