Kamala Harris shouldn’t succumb to overtures from the crypto crowd

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FT editor Roula Khalaf selects her favorite stories in this weekly newsletter.

The writer is the chairman of the financial reform advocacy group Better markets

After years of crypto-kingpins being handcuffed and sent to jail, numerous spectacular bankruptcies, rampant fraud and manipulation, staggering volatility, and a long list of lost court cases, the crypto industry is still at its peak in the US.

This is in part because she has a huge pile of cash that she is willing to spend on campaigns to buy the support of politicians who will support her special interest agenda. The big goal of the crypto industry is to choose its own regulator and get a layer of legitimacy, but not be regulated at all.

Since the Securities and Exchange Commission is a very strong and effective cop on the crypto beat, the industry sees this regulator as its “death knell.” The crypto crowd wants its political allies to put the smallest, least funded, least capable and easiest to capture financial regulatory agency in charge of crypto – the Commodity Futures Trading Commission.

With crypto, it is clear from many cases that almost all traded tokens fall within the standard definition of securities and should be regulated by the SEC as such. Those that are not securities fit comfortably within the standard definition of commodities and should be regulated by the CFTC as such.

There is really very little dispute about this among people who are not on the payroll of the crypto industry. And that’s why the SEC wins nearly every lawsuit it brings against crypto companies, which argue that most, if not all, of the securities, commodities, and banking laws that apply to every other financial firm in America don’t apply to them.

Less than two years after numerous politicians scrambled to return industry campaign contributions from the fraud-ridden FTX, the crypto is emboldened to the point where it is setting its sights on influencing Kamala Harris’ campaign for president. One reported argument is the alleged need to counter Donald Trump’s acceptance of crypto.

The crypto industry seems to be making some progress. Officials from the Biden administration and the Harris campaign recently held a conference call with industry figures. Harris should reject the overtures. Here’s why:

First, after years of effort and claims that cryptocurrencies have real value, there is still no real case for using them for legitimate purposes over existing currencies. They remain the financial product of choice for financial predators, law breakers and criminals around the world. The least harmful is speculation and wild gambling (as opposed to its other uses for tax evasion, fraud, ransomware, sanctions evasion, terrorist financing, narcotics trafficking, money laundering, etc.).

Second, easing crypto regulation is not among the top concerns of the American people. Contrary to industry propaganda, only about 18 million American adults actually use or own crypto, and that number is falling, according to Federal Reserve survey data.

It’s really a very niche problem. Of the 88% of Americans who have heard of crypto, a Pew Research survey last year found that a supermajority of 75% have little or no confidence in the reliability and safety of cryptocurrencies. Importantly, between 61 and 77 percent of voters in six key swing states have a negative view of crypto, according to venture capital firm Digital Currency Group and polling firm Harris Group (no relation to the vice president).

Third, the crypto industry’s extensive rap sheet with law-breaking is at odds with Harris’ long and strong record as a prosecutor fighting for consumer and investor protection and against financial industry law-breaking. Remember, when he was Attorney General of California, he was under enormous pressure to agree to a global subprime mortgage deal with the biggest and most powerful Wall Street banks. Harris was tough, even saying no to JPMorgan Chief Executive Jamie Dimon about a deal. It’s not easy. But she held firm and cut a much better deal for California.

Finally, communities of color are disproportionately victims of crypto fraud. Yes, these communities are rightly skeptical of the traditional financial system that has excluded, discriminated against and exploited them for so long. Unfortunately, that makes them a target for the crypto industry, which offers fake wealth-building opportunities. A 2021 survey by the social science research institute NORC at the University of Chicago estimated that 44% of crypto traders were non-white.

Harris has a lot to do in the run-up to the US election. Giving in to the threats of the crypto industry should not be one of them.