One week ago, when cryptocurrency prices fell, Celsius Network, an experimental cryptocurrency bank with more than a million customers that is emerging as a leader in the murky world of decentralized finance, or DeFi, announced it was freezing withdrawals “due to extreme market conditions.” .
Earlier this week, bitcoin fell 15% in 24 hours to its lowest level since December 2020. Last month, TerraUSD, a stable coin – a system that should have worked much like a conventional bank account, but was backed only by cryptocurrency, called Luna – collapsed, losing 97% of its value in just 24 hours, apparently destroying the savings of some investors.
Eighty-nine years ago, Franklin Roosevelt signed the Banking Act of 1933 – also known as the Glass-Stigall Act. He separated commercial banking from investment banking – Main Street from Wall Street – to protect people who have entrusted their savings to commercial banks from betting on their money.
Glass-Steagall’s bigger goal was to end Ponzi’s giant scheme, which overtook the US economy in the 1920s and led to the Great Depression of 1929.
Americans became rich by speculating on stocks and various types of exotics (roughly similar to crypto). The value of these risky assets has increased only because more and more investors are investing in them.
But at one point, Ponzi’s schemes fall apart by their own weight. When the overthrow occurred in 1929, it plunged the nation and the world into the Great Depression. Glass-Stigall’s law was a means of restoring stability.
But by the 1980s, America had forgotten the financial trauma of 1929. As the stock market grew, speculators realized they could make a lot more money if they could gamble with other people’s money, as speculators did in the 1920s. years of the last century. They urged Congress to deregulate Wall Street, arguing that otherwise the United States financial sector would lose its competitive position to other financial centers around the world.
Finally, in 1999, Bill Clinton and Congress agreed to throw away what was left of Glass Stigall.
As a result, the US economy has once again become a betting shop. Inevitably, Wall Street suffered another near-death experience from excessive gambling. His Ponzi schemes began to disintegrate in 2008, just as they did in 1929.
The difference was that this time the US government saved the largest banks and financial institutions. The remains were detained. After all, millions of Americans lost their jobs, their savings, and their homes (and not a single bank manager went to jail).
Which leads us to crypto crash.
The current chairman of the Securities and Exchange Commission (SEC), Gary Gensler, described cryptocurrency investments as “fraught with fraud, fraud and abuse”. In the murky world of DeFi crypto, it is difficult to understand who provides money for loans, where the money flows or how easy it is to cause currency crashes.
There are no risk management standards or capital reserves. There are no transparency requirements. Investors often do not know how to handle their money. Deposits are not insured. We return to the finances of the Wild West from the 1920s.
Prior to the collapse of cryptocurrencies, the value of cryptocurrencies continued to rise, attracting an ever-increasing number of investors and some big money from Wall Street, along with celebrity approvals. But, again, all of Ponzi’s schemes fail in the end. And crypto seems to be falling now.
Why is this market not regulated? Mainly because of the intense lobbying by the crypto industry, whose kings want Ponzi’s scheme to continue.
The industry is pouring huge amounts of money into political campaigns.
And it has hired dozens of former government officials and regulators to lobby on its behalf – including three former chairmen of the Securities and Exchange Commission, three former chairmen of the Commodity Futures Trading Commission, three former U.S. senators, and a former chief of staff. of the White House, and former chairman of the Federal Deposit Insurance Corporation.
Former Treasury Secretary Lawrence Summers advises crypto investment firm Digital Currency Group Inc and is on the board of Block Inc, a financial technology company that invests in cryptocurrency payment systems.
If we had to learn anything from the collapses of 1929 and 2008, it is that regulating the financial markets is essential. Otherwise, they turn into Ponzi schemes that ultimately leave small investors with nothing and destabilize the entire economy.
It’s time for the Biden administration and Congress to regulate crypto.
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