In the wake of the lawsuits filed by the Securities and Exchange Commission (SEC) against cryptocurrency exchanges Coinbase and Binance, it's time to refocus the conversation on the transformative potential of cryptocurrency, particularly in its capacity as a form of money that transcends traditional limitations.
The conventional functions of money are widely acknowledged as: a medium of exchange, a unit of account, and a store of value. But cryptocurrency underscores a less-discussed fourth function: a means of social control, an ability to set the rules of economic interactions. It's a democratic financial instrument that exists outside the control of traditional central banking systems.
Cryptocurrency, by its decentralized nature, pushes back against the centralized control and regulation associated with traditional money. In doing so, it raises important questions about financial sovereignty and monetary policy. It forces a discussion about who should have control over money and the rules governing its use.
As we noted in our paper "Blockchain, Cryptocurrency and the Future of Monetary Policy," it is important to remember that Bitcoin was created in response to regulators' inability to protect the public in the years leading up to the 2007/2008 financial crisis. The birth of this novel digital asset was rooted in a fundamental belief in decentralization and the democratization of money, intended to put power back into the hands of the people. It is rooted in an honest concern for the public interest, a concern that is missing from the SEC's recent actions.
This points to the fact that the ethical and monetary functionality of cryptocurrency is superior to that of traditional paper money (fiat). Cryptocurrencies can be transparent, auditable, and limit hidden manipulation. They can also facilitate micro-transactions, driving financial inclusion and empowering individuals who are currently underserved by traditional financial systems.
Given these facts, the SEC's aggressive lawsuits against Coinbase and Binance can be seen as attempts to bring this disruptive innovation under the control of existing regulatory frameworks. This may not be compatible with the social and freedom enhancing nature of cryptocurrencies.
Regulators need to recognize the uniqueness and potential of this transformative technology. Instead of seeking to fit crypto assets into an outdated regulatory framework, the goal should be to understand this technology and develop new ways to regulate it that foster innovation while providing consumer protection, as we outlined in our report.
If we ignore the unique properties of cryptocurrency and attempt to regulate it as we do traditional securities, we risk stifling an industry that is set to redefine not just financial systems but also social structures around value exchange and economic power.
As the SEC lawsuits unfold and the debate continues, one thing remains clear: cryptocurrency is here to stay. Its potential to disrupt traditional monetary control and democratize financial systems is immense. Rather than viewing this as a threat, regulators, financial institutions, and society at large should embrace this opportunity to redefine the future of finance in a way that serves everyone. The future dominance of cryptocurrency doesn't have to be a threat; it can be the next step in the evolution of money, making our financial systems more inclusive, transparent, and efficient.
A version of this article was published in the BankThink section of the American Banker Newspaper. See: https://www.americanbanker.com/opinion/the-secs-crackdown-on-binance-and-coinbase-is-misguided