Public Citizen opposition to cryptocurrency legislation
May 20, 2024
Honorable Member of Congress
House of Representatives
Washington, D.C.
Re: Vote No on H.R. 4763, the Financial Innovation and Technology for the 21st Century Act (The “FIT” Act)
Dear Representative,
On behalf of more than 500,000 members and supporters of Public Citizen, we strongly urge you to Vote No on H.R. 4763, the Financial Innovation and Technology for the 21st Century Act (The “FIT” Act). This bill would legitimize cryptocurrency. It ignores the convictions of leading cryptocurrency leaders Sam Bankman-Fried and Changpeng Zhao. It insults the millions of vulnerable Americans scammed by these Ponzi schemes. It only ratifies the breathless but never realized promises of democratized finance promoted by a shrill lobby funded by ill-gotten gains.
The crypto industry faces widespread criticism.[1] More than 1500 technologists signed a public letter calling for responsible oversight of the sector.[2] Berkshire Hathaway CEO Warren Buffett recently called cryptocurrency “rat poison squared.” His associate Charlie Munger labeled trading in this market as “dementia.”[3] Investor Mark Cuban said he’d prefer bananas to Bitcoin, “Because at least as food, bananas have intrinsic value.”[4] Bill Gates says cryptocurrencies are “100% based on greater fool theory,” or reliance on a rational assumption of one speculator finding another speculator willing to pay a higher price.[5] JPMorgan CEO Jamie Dimon said he’d fire any employee he found investing in Bitcoin. European Central Bank President Christine Lagarde says cryptocurrency is worth “nothing.”[6] Other skeptics include Allianz economist Mohamad El-Erian, economist Paul Krugman, and Oaktree Capital Management founder Howard Marks.[7] Nassim Taleb, who once considered Bitcoin promising, now says its ultimate worth is “zero.”[8] These voices, however, don’t come through marketing campaigns, unlike those of the crypto supporters, undergirded by hundreds of millions of dollars in political donations.[9]
Investment scams involving cryptocurrencies abound. During a five-month period, the Federal Trade Commission reported 7,000 cryptocurrency scams covering some $80 million in reported losses. That is 12 times the number of scams reported during the same period a year earlier, with a 1000 percent greater estimated loss.[10] One review found some malicious actors created digital coins that can be purchased but not sold. Others promised enormous returns that proved untrue.[11]
The cryptocurrency balloon has been inflated by influencers, many surreptitiously paid;[12] [13] massive advertising campaigns that we now know were funded, in part, through crypto firms’ misuse or theft of customer funds;[14] and a rogue’s gallery of online crypto enthusiasts, some of whom may have a self-interest in elevating the price of tokens.
Problems with the Legislation
The Securities and Exchange Commission (SEC) correctly understands that purveyors must register their cryptocurrencies and provide investor protection disclosures as provided under the Howey Test that applies to the issuance of all securities organized by a firm that promises a gain.[15] Courts have generally affirmed this rubric. The has SEC declared several cryptocurrencies as “unregistered securities.” [16] This bill, however, would negate this oversight and largely cede authority to the Commodities Futures Trading Commission (CFTC). It creates a new class called “digital assets” and declares that they are not securities.
The bill largely disenfranchises SEC oversight by setting unrealistic timelines for agency interventions and allows the CFTC to override any determination adverse to the crypto applicant. The CFTC lacks the resources to police this sprawling sector.
The bill immunizes tokens from all registration requirements provided the scheme raises less than $75 million a year.
We believe the bill would also allow traditional firms to escape compliance with securities laws by using blockchain ledgers.
In conclusion, we ask the House to reject cryptocurrencies and to reject this bill. Crypto lobbying is a one-sided coin. A recently published Public Citizen report found that for the 2024 election cycle alone, the crypto political action committees have raised a $102 million war chest. A few firms account for the lion’s share of this funding. Many of these donors have settled or faced charges for alleged violations of securities law. In races where they’ve sent money, their record has been impressive.[17] But there is no other side to this coin, no equivalent amount of coin contributed to candidates because they understand crypto for its inherent uselessness and support necessary investor protections. That makes it critical for House members to stand bravely and vote no.
For questions, please contact Bartlett Naylor at bnaylor@citizen.org.
Sincerely,
Public Citizen
[1]Gerrit De Vynck, First She Documented The Alt-Right. Now She’s Coming For Crypto. Washington Post (May 29, 2022) https://www.washingtonpost.com/technology/2022/05/29/molly-white-crypto/
[2]Assorted signatories,= Letter in Support of Responsible Fintech Policy (June 1, 2022) https://concerned.tech/
[3] James Royal, Warren Buffet Says to Avoid these Two Types of Hot Investments, Bankrate (May 6, 2019) https://www.bankrate.com/investing/warren-buffett-says-avoid-these-hot-investments/
[4] Taylor Locke, Mark Cuban: Bitcoin Is ‘More Religion Than Solution’ And Won’t Help In ‘Doomsday Scenarios, CNBC (Dec. 17, 2020) https://www.cnbc.com/2020/12/17/mark-cuban-bitcoin-is-a-store-of-value-that-is-more-religion.html
[5] Ryan Browne, Bill Gates Says Crypto And NFTs Are ’100% Based On Greater Fool Theory, ’ CNBC (June 14, 2022) https://www.cnbc.com/2022/06/15/bill-gates-says-crypto-and-nfts-are-based-on-greater-fool-theory.html
[6] Ryan Browne, Christine Lagarde Says Crypto Is Worth Nothing CNBC (May 23, 2022) https://www.cnbc.com/2022/05/23/ecb-chief-christine-lagarde-crypto-is-worth-nothing.html
[7] Trisha Phillips, Bill Gates and Other Powerful People Who Hate (or Love) Bitcoin, Showbiz Cheatsheet (May 25, 2018) https://www.cheatsheet.com/money-career/powerful-people-love-or-hate-bitcoin.html/
[8] Tanaya Macheel, Black Swan’ Author Nassim Taleb Says Bitcoin Is Worth Zero And Fails As A Currency And A Hedge CNBC (July 13, 2021) https://www.cnbc.com/2021/07/13/black-swan-author-nassim-taleb-says-bitcoin-is-worth-zero.html
[9] https://www.opensecrets.org/news/2022/06/crypto-industry-executives-spend-millions-on-political-contributions-as-washington-weighs-industry-regulations/
[10] Emma Fletcher, Cryptocurrency Buzz Drives Record Investment Scam Losses, Federal Trade Commission (May 17, 2021) https://www.ftc.gov/news-events/blogs/data-spotlight/2021/05/cryptocurrency-buzz-drives-record-investment-scam-losses
[11] Alexis Goldstein, Testimony, House Financial Services Committee (June 20, 2021) https://financialservices.house.gov/uploadedfiles/hhrg-117-ba09-wstate-goldsteina-20210630-u1.pdf
[12] SEC Charges NBA Hall of Famer Paul Pierce for Unlawfully Touting and Making Misleading Statements about Crypto Security, Securities and Exchange Commission (Feb. 17, 2023) https://www.sec.gov/news/press-release/2023-34
[13] SEC Statement Urging Caution Around Celebrity Backed ICOs Securities and Exchange Commission (Nov. 1, 2017) https://www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos
[14]Tiffany Hsu, Larry David Doesn’t Get Crypto. That’s Why He’s the Perfect Pitchman. New York Times (Feb. 13, 2022) https://www.nytimes.com/2022/02/13/business/media/larry-david-super-bowl-ftx-crypto.html
[15] The Howey Test consists of four prongs, all of which must be satisfied for the SEC to classify a transaction as a security. The four elements are as follows: [1] An investment of money [2] in a common enterprise [3] with expectations of a profit [4] to be derived from the efforts of others.[15] (The “effort of others” derives from the promotion by the sponsor.) Given that sponsored cryptocurrencies satisfy all these elements, they should be regulated by the SEC.
[16]Press Release, SEC Charges Former Coinbase Manager, Two Others in Crypto Asset Insider Trading Action Securities and Exchange Commission (July 21, 2022) https://www.sec.gov/news/press-release/2022-127
[17] Rick Claypool, Crypto Bros United, Public Citizen (May 6, 2024) https://www.citizen.org/article/cryptobros-united-fairshake-super-pac-2024-elections/