Congress’s leading crypto-skeptic is a Southern California congressman
Rep. Brad Sherman’s views on cryptocurrencies set him apart from most of his colleagues in Congress. The Northridge-area Democrat isn’t just wary of crypto: He hates it and sees it as a threat to America’s national security.
Sherman, who chairs an investor protection subcommittee, may be the leading crypto-skeptic on Capitol Hill.
A growing movement in Congress wants to bring more regulation to the nearly $2 trillion crypto industry, which is currently overseen by a patchwork of state laws and federal agencies. However, Sherman doesn’t just want to regulate cryptocurrencies, he wants them banned.
“I don’t think we’re going to get it [to a ban] anytime soon,” Sherman told The Times, noting that the crypto industry is a powerful player when it comes to campaign donations. “Money for lobbying and money for campaign contributions works, otherwise people wouldn’t do it; and that’s why we haven’t banned crypto. We didn’t ban it in the beginning because we didn’t realize it was important, and we didn’t ban it now because there’s too much money and power behind it.”
Like most crypto critics, Sherman worries that individual investors are being defrauded. But Sherman also worries that crypto poses a more systemic threat, enabling criminals and human rights abusers and undermining the dominance of the US dollar. Crypto advocates counter that the same technology could help persecuted people get their money out of authoritarian countries.
Sherman is particularly concerned about services like Tornado Cash, a cryptocurrency mixer like the Treasury Department has accused of money laundering over $7 billion since 2019 by taking payments and shuffling them through other accounts, making them nearly impossible to trace.
Not everyone who uses such services is a criminal. Vitalik Buterin, co-founder of the cryptocurrency Ethereum, admitted to use Tornado Cash for donating cryptocurrency to support the Ukrainian government, praising the platform’s ability to hide supporters’ donations from the Russian government. Many people living under authoritarian regimes sanctioned by the U.S. may have legitimate reasons for wanting to avoid U.S. sanctions, advocates say.
“For people in places like Iran, Palestine, Cuba or China, bitcoin is not their first [option]it’s their plan B,” Alex Gladstein, head of strategy at the Human Rights Foundation and a prominent bitcoin advocate, told The Times. “I’m sure they would love to just use the dollar like we do in America. But guess what, they [can’t]. And bitcoin is a very nice thing to have.”
Countries such as Argentina and Cuba has seen an increase in the use of bitcoin due to inflation and, in the case of Cuba, severe sanctions, Gladstein said. Above 400 Western Unions closed in Cuba during former President Trump’s tenure, making it more difficult for Cubans in the United States to send money home. So Cubans have turned to apps like Muun Wallet to send and receive money, and some even use bitcoin to pay for daily necessities, Gladstein added.
“People are caught between hyperinflation, currency devaluation and capital controls on the one hand, and US sanctions on the other,” he said. “So they turned to bitcoin because it has been remarkably potent against both types of evil.”
Many in the crypto industry also point to its use among people of color as evidence that it can serve as an alternative for unbanked communities. Nearly 40% of black Americans under 40 have invested in cryptocurrencies, according to a recent report from the Charles Schwab and Ariel Investments.
“A disproportionate number of people who received subprime loans were also people of color,” Sherman says, pointing to the racial disparity in who received predatory loans during the 2008 market collapse.
Sherman is torn about how best to protect crypto investors. He does not believe that people should be blatantly defrauded, but admitted that there is little he can do to stop people from recklessly spending their money.
“It is difficult to chair the subcommittee dedicated to investor protection in a country where people want to invest [meme coins],” he said. “Cryptocurrency is a meme you invest in, hoping you can sell it to someone else before it tanks. That’s the beauty of a Ponzi scheme.”
In the absence of a ban, Sherman believes crypto should be regulated through the Securities and Exchange Commission, the same regulatory body that oversees stocks, bonds and other securities. Since 2017, the SEC has brought over 80 enforcement actions related to cryptocurrencies; and in CanThe agency said it would double the number of enforcement personnel in the crypto unit to 50.
Sherman believes crypto should be regulated by the SEC because of the agency’s size, expertise, aggressive enforcement actions and because of crypto’s similarity to a stock or security, he said. However, Sherman may lose ground.
Later Debbie Stabenow (D-MI) and John Boozman (R-AR) last month introduced a bill which would define most cryptocurrencies as commodities rather than securities, and bring their regulation under the Commodity Futures Trading Commission – the same agency that oversees the trading of corn, oil and meat.
Stabenow and Boozman’s bill would require crypto trading platforms — including FTX, Coinbase and others — to register with the CFTC. Some of the biggest cryptocurrency exchanges welcome more federal oversight. Sam Bankman-Fried, billionaire founder and CEO of FTX, has been lobbying politicians to bring regulation under the CFTC. Coinbase, one of the largest exchanges in the US, also told The Times it supports regulation of the industry.
The Stabenow and Boozman bill would encourage exchanges and regulators to be more aggressive in fighting “abusive trading practices,” such as pump-and-dump schemes where an influencer hypes up a cryptocurrency and sells at the high price before it crashes . The bill would also require platforms to report the demographics of their users, and use that data to tailor regulation.
Sherman, Stabenow, Boozman and the top crypto firms all agree that the industry should be regulated. But they strongly disagree on the details — and when trillions of dollars are at stake, details can be worth billions.
Market reform groups such as the nonprofit Better Markets agree with Sherman that the SEC should take the lead on crypto regulation. Current and former financial regulators have spent the past few months publishing dueling Wall Street Journal op-eds on the subject. And the crypto industry has spent tens of millions of dollars in the past year on political donations and lobbying Congress.
Sherman may dream of banning crypto, but for now it is far from clear that he will even win the battle over how to regulate it.