Will Regulation Stifle Crypto and Do We Care?

Technology Policy Brief #80 | By: Mindy Splatt | March 6, 2023

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Chairman Sen. Sherrod Brown (D-OH) chats with ranking member Sen. Tim Scott (R-SC) during a Senate Banking, Housing, and Urban Affairs hearing to examine the crypto crash, focusing on why financial system safeguards are needed for digital assets on Capitol Hill .

Photo taken from: Kent Nishimura, Los Angeles Times / Getty Images

Policy Summary

Fans of crypto have enthusiastically told me it enables lower income people to invest and earn money. They think it is more democratic and less corrupt than the stock market. And they eschew consumer protections,  believeing that in order for it to accomplish these wonders it must not be hampered by a governmental bureaucracy.   

These same predictable arguments were  made by the industry at the Senate Banking Committee’s Valentine’s Day hearing “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets.” And while these currencies market themselves “smart” and modern, their insistence that regulation hampers innovation and that consumers don’t need protections are old, tired and unproven.

The hearing was a first step for the committee, chaired by Sherod Brown (D-Ohio) and Tim Scott (R-S.C.), towards its goal of bipartisan agreement on a regulatory scheme for crypto, a goal the crypto companies are vigorously opposed to.  In response they have upped their lobbying game; the industry spent over $21 million on influence in the US last year.

Professor Linda Jeng, J.D., Chief Global Regulatory Officer at the Crypto Council for Innovation, touted the ground breaking inclusionary nature of crypto free from regulatory restrains.  “Most adults who are unbanked or underbanked represent communities that have historically been the victim of discriminatory or exclusionary financial practices…. Digital assets, which have lower barriers to entry and do not suffer from a legacy of exclusionary practices and stigmas, offer people from historically-excluded or unbanked/underbanked communities new access to secure, low-cost, and effective financial services.”

But Lee Reiners, policy director at Duke University’s Financial Economics Center, called this inclusion “predatory.”  “There is no evidence whatsoever to suggest that crypto promotes financial inclusion,” he said.  “In fact, overwhelming evidence suggests the exact opposite is happening.  Most people who’ve invested in cryptocurrency have lost money. Of those people, a plurality are minorities and low-income Americans.”

Policy Analysis

Reiners likened the situation to the 2008 financial crisis, “where low-income and minority communities are being explicitly targeted with very, very risky products, and, unfortunately, they have lost — in many cases — everything.”  He argued that better consumer protections are needed and favored  regulation of crypto as a commodity through the Securities Exchange Commission. 

Reiners was questioned by Senator Elizabeth Warren (D- Mass) on the use of crypto in money laundering schemes, ransomware attacks and other shady dealings.  Reiners’s sarcastic reply wasOh I’m sorry, crypto is the exclusive payment method of choice for ransomware hackers.’   

Hilary J. Allen, professor of law at the American University Washington College of Law, agreed that crypto currency, as it currently exists, easily lends itself to fraudulent activities.  “Sam Bankman-Fried may have engaged in good old-fashioned embezzlement,” she said, “but the embezzlement was able to reach such a scale and go undetected for so long because it was crypto – shrouded in opacity, complexity, and mystique.”

Senator Warren announced that she and Senator Marshall (R- Kan) would reintroduce their Digital Asset Anti-Money Laundering Act, which they say will “bring digital assets into greater compliance with anti-money laundering and anti-terrorism financing requirements.”

CA US AntiMoneyLaunderingAct Infographic Article
In 1970, Congress passed the Currency and Foreign Transactions Reporting Act, introducing specific record-keeping and reporting obligations for US banks and financial institutions. Jumping to 2021, the Anti-Money Laundering Act was passed to strengthen and modernize the BSA by addressing the money laundering threats posed by shell companies and emerging technologies such as cryptocurrencies.

Chart taken from: Comply Advantage (.com)

(click or tap to enlargen)

Senator Brown released a statement supporting the application of basic consumer protections to crypto, including:

  • Clear disclosures and transparency 
  • Prohibitions on conflicts of interest and self-dealing 
  • Protecting customer funds by separating them from company assets.
  • Internal governance and risk management to require a platform that takes customer funds to act prudently.
  • Oversight and supervision to prevent abuses.


No specific legislation or regulations were mentioned in Brown’s statement.

Despite that, industry’s response to the hearing was extremely defensive.  Kristin Smith, CEO of the Blockchain Association warned in POLITICO “We’re feeling a crypto carpet-bombing moment, where they seem to be trying to throw whatever they can within their authority — or potentially exceeding their authority — and we think …it’s bad for U.S. competitiveness,” suggesting the crypto bros will take their marbles elsewhere if anyone dares to make them play by the rules. 

Some of the testimony and commentary at the hearing suggest not everyone would be sorry to see them go.

Engagement Resources​

Click or tap on resource URL to visit links where available 

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Testimony at https://www.banking.senate.gov/hearings/crypto-crash-why-financial-system-safeguards-are-needed-for-digital-assets


Mr. Lee Reiners, Policy Director, Duke Financial Economics Center



Professor Linda Jeng

Visiting Scholar On Financial Technology, Adjunct Professor Of LawGeorgetown Institute of International Economic Law


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Professor Yesha Yadav, Vanderbilt University Law School


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