Froma Harrop: Time to regulate crypto? Why not Beanie Babies?

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Froma Harrop

Cryptocurrencies were born out of the libertarian dream of a financial system free from government regulation. Bitcoin promoters peddle its ability to let us transact without dealing with regulated banks, which they say we are not supposed to trust.

What crypto players since stripped of their investments have seen is some traders getting incredibly rich sitting in their shorts and running numbers on their laptops. The less savvy might not quite understand how it worked, but they could bask in the flattery of being called brave, according to Super Bowl ads.

Crypto markets crashed amid a series of scandals, crimes and growing evidence that much of that wealth was basically made-up money. Amid so much suffering, there have been growing calls in Washington to impose government oversight on the industry.

The idea is crazy.

Nonetheless, Securities and Exchange Commission Chairman Gary Gensler wants to work with Congress to increase his agencies’ oversight of what he accurately calls the Wild West of crypto. And Senator Elizabeth Warren is predictably working on a big digital currency bill that Politico says would cover consumer protections, anti-money laundering rules, and climate safeguards for crypto mining.

The climatic part refers to coal-fired power plants providing the obscene amount of electricity to mine bitcoin. And money laundering (and assorted scams) is made possible by another of the libertarian virtues of cryptos, anonymity.

Most of the problems Warren cites are being resolved thanks to the collapse of crypto stocks. Many financial experts say the era of crypto is now over (although the associated blockchain technology may have good future uses).

When the government gets involved in investment oversight and the whole category collapses, calls for government bailouts follow. Do taxpayers really want to pay for invented money? Moreover, the main selling point of crypto is that it is not regulated by the government.

But aha, some crypto companies are now saying, OK, as long as we help write the regulations. If that happens, again, heaven help the taxpayers.

One such volunteer was Sam Bankman-Fried, whose $32 billion fortune apparently disappeared along with the holdings of depositors from his former crypto empire, FTX. Bankman-Fried has smartly broken away from other players in its industry by actively calling for regulations. This got potential investors thinking: A guy who wants his crypto business regulated is probably on the rise, unlike other figures in this admittedly bleak business.

Some have compared the crypto craze to the Beanie Baby bubble of the 1990s. Beanie Babies were nothing more than cloth dolls stuffed with beans. They originally retailed for $5, but their creator, as Vox reports, used the illusion of scarcity to trick many into thinking they could be incredibly valuable. People lined up outside Hallmark stores to score a new version of Beanie Baby. Particularly desirable models traded for thousands of dollars. Naturally, a black market in counterfeit Beanie Babies quickly surfaced.

But push Beanie Babies aside and make room for CryptoKitties. It is a blockchain-based game that works as follows: you flip one of the cryptocurrencies in exchange for pictures of cute little cats. They are marketed as single kitten images, and some have sold for over $100,000. But CryptoKitties are nothing more than digital works of art, which means they have no value other than what you think they are.

Agustin Carstens, former head of the International Monetary Fund, called crypto a combination of a bubble, a Ponzi scheme and an environmental disaster.

Cryptocurrencies were created to avoid the government. The government should avoid cryptocurrencies.

Let us who trust the banks stroll past the smoldering ruins of crypto. Not our problem or shouldn’t be.

Froma Harrop is a syndicated columnist. Follow her on Twitter @FromaHarrop. It can be emailed to [email protected].

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