Stand with The Libertarian Institute

The Empire has us on the brink of nuclear Armageddon. The central bank has us flirting with economic-social collapse. Americans are increasingly paranoid of one another and simultaneously invested in wielding the state against one another.

The voices of the establishment are legion. The voices of dissent are few. Make your stand for liberty by supporting The Libertarian Institute today.

TGIF: Beware the Regulatory Storm over FTX

by | Nov 18, 2022

TGIF: Beware the Regulatory Storm over FTX

by | Nov 18, 2022

bitcoin

The bankruptcy of the cryptocurrency exchange FTX and the alleged fraud by co-founder Sam Bankman-Fried, which has cost customers millions, is tailor-made for anyone who already wants the power of government to expand, especially in the area of financial privacy. For that reason I think it would be useful to take a 30,000-foot view of the matter. I offer these considerations as someone with no more than a layman’s knowledge of the cryptocurrency phenomenon. (I found this Reason video helpful.)

First, fraud is illegal. If a firm accepts money from clients and uses it in violation of the contractual terms, that is already against the law and the victims have legal recourse. So right off the bat we should be highly doubtful about calls for new laws and regulations or expanded regulatory oversight.

Second, regulation can create a moral hazard. That’s what happens when a sense of security provided by insurance or government regulation unintendedly encourages the very bad thing that one sought to avoid. Think of the massive stock fraud perpetrated by Bernie Madoff. Madoff was a well-connected investment insider who defrauded highly sophisticated individuals and charities. He didn’t prey on naive widows. Madoff had even worked with the Securities and Exchange Commission (SEC). Isn’t it plausible that the existence of the regulatory regime worked to Madoff’s advantage? Imagine if no such regime had existed and investors had not been led to rely on an SEC “watchdog,” with all the classic bureaucratic deficiencies, to protect them. Would they have been such easy marks? I think not.

Fraud is always possible no matter the regulatory environment. Thus a false sense of security is worse than none at all.

Critics of markets denigrate the buyer beware principle, but when compared to the alternative — trust state bureaucrats — it looks pretty good. To the extent that regulators weaken buyer beware, they do a disservice to the public while posing as benefactors. Buyer beware is necessary in any legal environment. If you were looking for a new doctor, would you be content simply to throw a dart at a list of government-licensed physicians? Or would you ask around?

Third, the alleged criminality of FTX should not impugn cryptocurrency per se any more than Maddoff’s criminality impugned the stock market per se. If, as appears to be the case, a bad actor harmed a lot of people, he should have to compensate his victims. (Of course, that may not come close to making them whole.) But Bankman-Fried’s wrongdoing must not be used to demonize cryptocurrency as inherently suspect and illegitimate or to drive it out of existence. No reasonable person concluded that we should not have a stock market because Madoff used it to fleece lots of people.

Fourth, some powerful people are out to get cryptocurrency precisely because it can help regular people maintain some privacy. Those with a fetish for government power have pushed and often attained measures designed to abolish financial privacy. For example, through the government’s “Know Your Customer” rules, banks are obliged to inform regulators about their depositors’ behavior even if no evidence of criminality exists. Regulation of the government-cartelized banking industry is so extensive that bureaucrats can make virtually any demand and the unwitting depositors whose privacy is compromised have little or no recourse. In a competitive banking industry with market-based money, banks would perhaps offer different assurances about privacy and consumers would freely decide what level they valued at what price. That’s how it should be.

If people believe that financial privacy matters only to those who have harmful activity to hide, they need to get over it. Financial privacy and privacy in general are simply implications of self-ownership and should matter to everyone. It is obviously important in authoritarian and totalitarian countries, where governments freely confiscate people’s wealth, but it’s also important here. We can’t know exactly what the future holds. Remember what happened to protesting truckers’ bank accounts in Canada? Let’s also not forget PayPal’s threat, since rescinded, to fine customers for spreading alleged misinformation. And the war on drug sellers and users can’t be a good reason for denying financial privacy because the so-called drug war should be abolished.

No one who cares about individual freedom should stand by and let the FTX scandal become a pretext for expanded government power and the destruction or nationalization of cryptocurrency.

About Sheldon Richman

Sheldon Richman is the executive editor of The Libertarian Institute and a contributing editor at Antiwar.com. He is the former senior editor at the Cato Institute and Institute for Humane Studies; former editor of The Freeman, published by the Foundation for Economic Education; and former vice president at the Future of Freedom Foundation. His latest books are Coming to Palestine and What Social Animals Owe to Each Other.

Our Books

thisone

Related Articles

Related

TGIF: On Liberty and Security

TGIF: On Liberty and Security

"Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety." Benjamin Franklin's famous words are often quoted because, alas, they are always relevant. Whether Franklin meant what libertarians take him to have...

read more
Will Joe Biden Make the Trains Run on Time?

Will Joe Biden Make the Trains Run on Time?

“I intend to be the most pro-union President leading the most pro-union administration in American history," President Joe Biden promised last year. But Uncle Joe has found his “inner Mussolini” and nothing is as important as the trains running on time. Biden is...

read more

Pin It on Pinterest

Share This