Crypto...

I’m fascinated by how markets either promote the public interest or subvert it. Much depends on how they’re designed. Markets don’t exist in nature. They’re created and enforced by governments. Which is why the old saw about the choice being “government or free market” is so dangerously wrong. It prevents us from examining whose interests are being advanced and whose are being suppressed in the design of markets, and who’s behind the design. In other words, where power lies.

The market for so-called crypto-currencies offers a case in point. Yesterday, the CEOs of six cryptocurrency companies testified before the House Financial Services Committee about the uses and abuses of crypto assets -- the first time crypto executives have addressed lawmakers. What will Congress do? Hmmm.

Crypto is no longer just a quirky means of financing illicit activities. It’s become a huge, unregulated gambling arena. And as it expands to include ever more of the portfolios of private-equity funds, hedge funds, mutual funds, venture capitalists and Wall Street banks, it’s fast becoming a political powerhouse as well.

What we’re seeing is a race between speculators who stand to gain billions by keeping the crypto arena unregulated, unobserved, untaxed, and uncontrolled -- and who are starting to spend huge sums to keep it that way – and those who stand to lose vast sums from the hackers, launderers, con artists, pump-and-dumpsters, Ponzi-schemers, and fraudsters now thriving in this murky underworld.

Crypto ransomware is exploding. The U.S. government recently traced crypto ransom paid by American corporations, hospitals, and city governments to a prestigious business address in Moscow.

In May, the Federal Trade Commission reported that consumers had lost more than $80 million on crypto scams between October 2020 and March 2021 -- more than ten times the amount lost during the same period the previous year, $2 million of which was lost to scammers impersonating Elon Musk.

Venture capitalists have invested more than $27 billion in crypto so far this year alone, more than the previous 10 years combined, according to PitchBook. Goldman Sachs is opening a cryptocurrency trading desk. Since February, BNY Mellon has allowed its clients to hold Bitcoin. Wells Fargo is planning to offer professionally managed cryptocurrency funds for qualified investors. Morgan Stanley’s Europe Opportunity Fund reports owning almost 30,000 shares of the Grayscale Bitcoin Trust, according to a June 28 filing.

This has created enough financial clout to forge a “crypto congressional complex” intent on keeping the game going.

The complex has already attracted big-name players, including Brian Brooks, acting Comptroller of the Currency under Donald Trump and now chief executive of the blockchain technology company Bitfury Group; Jay Clayton, chair of the Securities and Exchange Commission under Trump and now an advisor to Fireblocks, a $2 billion Israeli-based crypto custodian; and Brian Quintenz, until September head of the Commodity Future Trading Commission’s Technology Committee, now adviser to Andreessen Horowitz, a venture-capital firm and investor in crypto startups. Andreessen Horowitz recent hires also include a former aide to Joe Biden and a former Justice Department crypto prosecutor.

Crypto campaign money is now flowing freely to members of Congress (some of it, presumably, in cryptocurrencies – but, who knows?) Congress’s “Blockchain Caucus” now counts 35 lawmakers as members. Cynthia Lummis, a Republican senator from Wyoming, has already raked in a significant portion of her 2026 campaign contributions from individuals linked to crypto firms. (In November she announced her opposition to Jerome Powell’s reappointment to head the Federal Reserve because of the central bank’s “political approach to digital assets.”)

Based on public disclosures, The Economist estimates that in the first nine months of this year, crypto firms spent some $5 million lobbying the U.S. Senate, about $2.5m of which was spent between July and September (four times the amount spent during the same period last year). The industry is now deploying the equivalent of 86 full-time lobbyists in Washington, up from just one in 2016. This is likely to be just the start.

So far, the U.S. government hasn’t clarified whether cryptocurrencies are securities requiring heavy disclosures, or commodities whose exchanges are charged with preventing market manipulation. Crypto isn’t even currently reported on the forms hedge funds are required to file with the S.E.C., which list their ownership of stocks and bonds. This has left regulators in the dark.

All of which raises the question: As the crypto congressional complex continues to grow, how much longer will lawmakers and regulators be able to rein crypto in?

What do you think?