Who in Washington understands bitcoin? Or, more broadly, cryptocurrency? Everyone in Washington is talking about Charlie Rose, Sen. Al Franken (D-Minn), Roy Moore and the like, but I am wondering if something big is happening. Is there a wave of new “money” sweeping the globe that Washington is too distracted to see, or is this just another passing Internet fad that no one will remember in a year?
Is bitcoin part of the sovereignty movement — from the Kurds to Catalonia and Brexit to Trump — or is it a scam? Is the whole thing a Stephen K. Bannon conspiracy, or is it somehow akin to the decentralized “Occupy” movement of a few years ago? Are there any partisan politics associated with cryptocurrencies? Is there something about today’s political atmosphere that is contributing to the growth of bitcoin? Who in Washington knows and cares? I don’t have many answers, but I think it is important.
In September, International Monetary Fund managing director Christine Lagarde made this important statement:
Not so long ago, some experts argued that personal computers would never be adopted, and that tablets would only be used as expensive coffee trays. So I think it may not be wise to dismiss virtual currencies. … Think of countries with weak institutions and unstable national currencies. Instead of adopting the currency of another country — such as the U.S. dollar —some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0.
Lagarde is a serious person, and she is not prone to hyperbole, partisan disposition or fashionable notions. When she says we shouldn’t dismiss virtual currencies, policymakers and others should pay attention.
Opinion-leader executives like chairman and chief executive of JPMorgan Chase Jamie Dimon are beginning to share their thoughts on the matter. Last month, Dimon said, “If you’re stupid enough to buy [bitcoin], you’ll pay the price for it one day.” But, as Bloomberg reports this morning, “JPMorgan is gauging client demand and the potential risks of facilitating client trades in CME Group Inc.’s planned bitcoin futures contracts.” Hmm. They aren’t alone. During a recent earnings call, Citigroup chief financial officer John Gerspach told investors, “We think the area of cryptocurrency and digital currency is an area worthy of exploration.”
As far as Washington goes, a good rule of thumb — as memorialized by Deep Throat in the Watergate era — is “follow the money.” Figure out who is making money off bitcoin, and the swamp will eventually want to know if they are paying their taxes. Echoing this point, Jamie Dimon said, “Governments — and this is not a technological statement — governments are going to crush it one day. Governments like to know where the money is, who has it and what you’re doing with it, in case you haven’t noticed.”
So far, only a few in Washington have felt compelled to take note of what was happening with cryptocurrencies. But the market capitalization of cryptocurrencies has skyrocketed up about 1,300 percent, from approximately $17.7 billion in January to $245 billion today – exceeding Bank of America’s March 31 Forbes 500 list valuation.
Just think of all the resources Washington expends regulating and tracking Bank of America. Are cryptocurrencies too small to care about? I’m not sure Washington even knows if bitcoin is sinister or liberating. Quite frankly, with near-daily distractions of assorted perversions from public figures in the news, even big policy initiatives like tax reform have become a sideshow. So, when we talk about something as complicated as bitcoin, it is unclear whether political leaders in Washington will care about cryptocurrency anytime soon absent something big happening.
For now, however, Reps. Jared Polis (D-Colo.) and David Schweikert (R-Ariz.), co-chairs of something called the Congressional Blockchain Caucus, introduced the Cryptocurrency Tax Fairness Act of 2017 to create tax parity for cryptocurrencies. Instead of treating cryptocurrencies such as bitcoin like stock, their legislation would treat them like foreign currencies and allow consumers to more freely make payments with them. And a month before the House Financial Services subcommittee on terrorism and illicit finance held a hearing in June called “Virtual Currency: Financial Innovation and National Security Implications,” Rep. Kathleen Rice (D-N.Y.) introduced the Homeland Security Assessment of Terrorists Use of Virtual Currencies Act, which the House later passed with the goal of preventing terrorist subversion of lawful cryptocurrency exchanges. Neither of these bills have been signed into law, but at least they show some awareness and activity.
The worldwide acceptance of dollars is an important pillar of American soft power that is eroding on multiple fronts around the world. Too few have made addressing cryptocurrencies a priority, and too few understand how they work and their implications for the United States. A few hearings have been held, a few bills have been considered, and a few lawyers and lobbyists are staking out some turf. However, there is a think tank in Washington – the Coin Center – which bills itself as “the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum.” It appears to be a tech-y, entrepreneurial enterprise that includes seriously credentialed people such as Marc Andreessen of the VC firm Andreessen Horowitz and former deputy assistant attorney general Jason Weinstein of the law firm Steptoe & Johnson. Good for them.
Our leaders in Washington must ask themselves, could non-state, digital currencies affect the economy just like non-state actors (Islamic State, Hezbollah, etc.) affect our geopolitics? It appears the potential is significant.
Anyway, I never really understood what swaps and derivatives were, but they were big and they were associated with the causes of the Great Recession. In 2008, all the smart people seemed to understand these instruments right up until they didn’t.
Understanding the growth and possible impact of cryptocurrencies isn’t easy, but it is important. Our policymakers shouldn’t be caught napping. The rise and potential fall of digital currencies will have consequences. In Washington we need more adult supervision and behavior, and less of whatever is happening now.