Earlier this week, Bitcoin fell 15% in 24 hours to its lowest level since December 2020. Last month, TerraUSD, a stablecoin – a system that supposedly worked much like a conventional bank account but was only supported from a cryptocurrency called Luna – collapsed, losing 97% of its value in just 24 hours, apparently ruining the life savings of some investors. Eighty-nine years ago, Franklin D Roosevelt signed into law the Banking Act of 1933 – also known as the Glass-Steagall Act. He separated commercial banking from investment banking – Main Street from Wall Street – to protect people who trusted their savings in commercial banks from betting their money. Glass-Steagall’s ultimate goal was to put an end to the giant Ponzi scheme that had overtaken the American economy in the 1920s and led to the Great Depression of 1929. Americans became rich by speculating on stocks and various kinds of exotic products (almost analogous to crypto). The values of these risky assets increased solely because a growing number of investors were investing in them. But at some point, Ponzi schemes are losing weight. When the overthrow took place in 1929, it plunged the nation and the world into a Great Depression. The Glass-Steagall Act was a means of restoring stability. But by the 1980s, America had forgotten the financial woes of 1929. As the stock market soared, speculators noticed that they could make a lot more money if they could bet on other people’s money – as speculators did in the decade. They pushed Congress to deregulate Wall Street, arguing that otherwise the United States financial sector would lose its competitive position relative to other financial centers around the world. Finally, in 1999, Bill Clinton and Congress agreed to give up what was left of Glass-Steagall. As a result, the American economy has once again become a betting shop. Inevitably, Wall Street suffered another near-fatal gambling experience. Her Ponzi designs began to fall apart in 2008, as did 1929. The difference was this time the US government rescued the biggest banks and financial institutions. The wreckage was reduced. However, millions of Americans lost their jobs, their savings, and their homes (and not a single bank executive went to prison). Something that brings us to the cryptographic crash. The current chairman of the Securities and Exchange Commission (SEC), Gary Gensler, has described investing in cryptocurrencies as “full of scams, fraud and abuse”. In the cloudy world of DeFi cryptography, it is difficult to know who is lending money, where the money is flowing or how easy it is to trigger a currency collapse. There are no standards for risk management or capital reserves. There are no transparency requirements. Investors often do not know how to handle their money. Deposits are not insured. We went back to the wild west economics of the 1920s. Before the cryptocurrency crash, 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 Ponzi designs are eventually overturned. And it seems that encryption is now collapsing. Why is this market not regulated? Mainly because of the intensive lobby from the encryption industry, whose kings want the Ponzi scheme to continue. Industry throws huge sums of money into political campaigns. And it has hired dozens of former government officials and regulators to put pressure on it – including three former chairmen of the Securities and Exchange Commission, three former chairmen of the Commodity Futures Trading Commission, three former White House House, and the former president of the Federal Deposit Insurance Corporation. Former Secretary of the Treasury Lawrence Summers advises cryptocurrency investment firm Digital Currency Group Inc. and serves on the board of Block Inc., a financial technology company that invests in cryptocurrency payment systems. If there is one thing we should have learned from the crashes of 1929 and 2008, it is that regulating the financial markets is essential. Otherwise, they turn into Ponzi schemes that ultimately leave nothing to small investors and destabilize the entire economy. It’s time for the Biden administration and Congress to regulate encryption.
