Even casual viewers of US cable news are familiar with commercials featuring actor William Devane – usually golfing or horseback riding – exhorting them to invest in precious metals. Lately, Devane has been joined in this pursuit by financial educator Robert Kiyosaki, creator of the “Rich Dad, Poor Dad” book series.
The prevalence of these ads should not be surprising. In these volatile times, the Donald Trump administration has spent big and printed money. (The United States is not alone in borrowing and printing its way out of the Covid-19 pandemic.) There is no reason to expect different behavior under President-elect Joe Biden.
It’s no wonder that alternative stores of value are flourishing. Days ago, the cryptocurrency Bitcoin reached yet another all-time high, just as it became clear that a Biden-Harris administration was a fait accompli.
But while Bitcoin is the best-known digital currency, it is only a small part of a technological shift that could satisfy our demand for safer, cheaper, and faster ways of doing business in times of crisis and disruption.
Bitcoin’s underlying technology, blockchain – a sort of shared, secure ledger of transactions among networked computers – has applications ranging from supply-chain management to securing international payments. It could be “a game changer for the global economy,” according to JPMorgan Chase.
In fact, that investment giant started using its own JPM Coin in October to move investor money across its global financial platforms. Consulting firm Gartner forecasts that the business value-add from blockchain will blow past US$3 trillion by the end of this new decade.
The industry powering all this change, however, is finding it harder to stay in the United States because of Washington’s dysfunction. Silicon Valley startups are investing billions in research and development, but there is still no clear set of rules to help them bring products to market. Congress has punted on writing a regulatory framework, and the country’s oversight agencies are – as usual – fighting over turf.
Experts say that this “regulatory chaos” is suppressing American innovation while other market centers like Britain and Singapore have quickly updated their rules to lure American blockchain developers away, and while Beijing scrambles to establish tech dominance.
Roslyn Layton of the American Enterprise Institute sent the US Senate a blunt message this month: Regulators, lacking guidance, are killing innovation. China could soon overtake us, she warned, unless the Senate holds Biden to his promises of “technocratic competence” and firm economic competition with China.
At least eight regulatory agencies are fighting over who gets to play US crypto cop. Without any direction, regulators “copy-paste their bureaucracy on anything that moves,” Layton observed. The Securities and Exchange Commission (SEC) is applying archaic 1930s rules that “never imagined blockchain solutions,” comparing all digital assets to securities no matter how they are designed or used.
Critics like Layton point to China’s new “digital yuan” – the country’s sole legal cryptocurrency – as a disturbing signal that the Chinese are gaining on the US. The People’s Bank of China formally issued it in October and has enticed 2 million Chinese to bid on US$10 million worth of the official token, says Wayne Brough of the Innovation Defense Foundation.
Big American companies including Starbucks, McDonald’s and Subway have embraced China’s new currency. France, Sweden, Switzerland and Japan are developing central-bank digital currencies of their own. Brough frets that through inaction, the US will “blunder our way out of winning a race that we were born to win.”
George Nethercutt, a former Republican congressman from Washington state, warned in The Hill that Washington’s neglect could create “a needless train wreck.” China and Singapore are paving the way for their own blockchain industries, he wrote, “while the US is struggling with a coin shortage, stimulus-check complications, and an obvious dearth of understanding on Capitol Hill about what a cryptocurrency even is.”
This is “embarrassing” for the most technologically developed country in the world, he lamented.
Layton and Nethercutt point the finger at outgoing SEC chairman Jay Clayton, who, Layton said, made “a deliberate lack of regulatory clarity” the “cornerstone of his crypto policy approach.” Clayton demonstrated “no understanding for the need for a regulatory framework” with his “notoriously guarded approach” to blockchain solutions, Nethercutt added, “significantly constraining American innovators.”
Clayton empowered the SEC by treating any digital asset as a “security,” justifying enforcement actions with a 1946 Supreme Court ruling. Clayton’s SEC lowered the boom on “utility tokens” – a core feature of business software using blockchain – according to Layton, even if they “had no resemblance to investment contracts.”
This treatment extended to utility token XRP, the third-highest-valued cryptocurrency in the world, used by American developers such as Ripple and R3 to power the kind of payment systems that JPMorgan has already rolled out. Just by putting this token under “a bewilderingly persistent enforcement threat,” the SEC hurt every developer on the XRP ledger. Clayton preserved his own agency’s power “but steadily eroded US leadership as the best place to do business.”
It remains to be seen what Biden thinks of Clayton’s view of unlimited power over digital assets, or whether Biden’s promise of bipartisan cooperation will extend to ending the regulatory chaos.
Republicans have spent the last four years slashing regulations and reining in the administrative state and should understand that China can’t be allowed to win the crypto race.
Senate Democrats on the Banking Committee such as Elizabeth Warren and Sherrod Brown should remember that a president of their party, Bill Clinton, enacted the regulatory framework for e-commerce in 1997. It created millions of American businesses, reaching tens of millions of customers, and spawned a long list of occupations that had never existed before.
Coming together to vet Biden’s SEC pick on crypto policy and move the country closer to a clear set of rules would be a win-win for both parties and for the US economy. Our competitors abroad can never beat us on innovation – unless we continue to shoot ourselves in the foot.