The state must think carefully before chasing New Hampshire’s lead and creating a strategic crypto preparation for the state. The state lawmakers made a suspicious bet using public funds on suspicious and dangerous products. If they lose, taxpayers and others will lose too.
The large political spending of the crypto industry in 2024 has acquired many politicians willing to agree to any light touch regulations they are seeking. This has sparked interest in crypto among some investors who view it as a green light to invest in Crypto’s boastful claims of innovation.
However, the industry’s systematic issues that caused the crypto market crash in 2022 have wiped out $2 trillion in investor funds, but still exists. Fraud, double trading, backroom trading, dangerous loans, poor management, money laundering, daily hacking and other issues are no exception, the rules of the crypto market.
For example, research suggests that most people lost money from crypto investments. Many of the tens of thousands of crypto tokens introduced each year have a value of “zero.” The crypto market is full of fake transactions organized by insiders to artificially raise tokens and prices and fraudulent investors. Last year, consumers reported $9.3 billion in losses to the FBI due to crypto-related financial crimes. This has been an increase of 100% from the previous year, but is still a substantial shortage given that many financial crime victims are unable to report shame.
Given this, why would it suggest that it would be wise for everyone to use public funds to reserve crypto assets as “reserves”? It’s hoping that those who stockpile poker chips and gamble with them will win a big win.
The main argument for crypto-protected sanctuaries is reportedly the numbers go up. Big crypto assets like Bitcoin are said to be grateful over time.
However, the data challenges such claims. Crypto prices, including Bitcoin, tend to correlate with traditional financial markets. Many crypto assets are highly volatile and dramatically reduce their value without warning, let alone all fraud. How does all that risk spread with the government’s responsibility to carefully manage public funds over the long term? The answer is not that.
The idea for reserves is that despite the hype that the crypto market is booming, trading activity is still relatively low. Most people are still wary of codes. For a big crypto investor (called “whales”) sitting on a big pile of bitcoin, this may be rich on paper, but it means they won’t sell. Doing so will flood the market, lower prices and lower shares. If the state government guarantees buyers, these big whales have a great way to win overnight. It’s probably good for them, but I don’t think it’s good for the rest of us.
Ironically, the mostly conservative voices promoting crypto sanctuaries have historically disliked similar ideas. These voices criticize programs like strategic oil reserves and claim they interfere with the free market. At least in oil or grain reserves, you stock up on something useful. Even 15 years from now, it is difficult to find semantic cases of code beyond speculative gambling and illegal finances.
Despite the deep problems of Crypto, the industry’s aggressive influence, promotions and risky products will likely create another bubble that will burst, and this time hurt more people. The state should resist the fear of codes of missed things, take responsibility for public funds, and refuse to place dangerous bets on codes.
Mark Hayes is the Associate Director of Crypto and Fintech for American (ofinfinancialsecurity.org), a progressive nonprofit organization for financial reform.
