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The crypto market meltdown: Could it pave the way to new regulations?47:26
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A picture taken on February 6, 2018 shows a visual representation of the digital crypto-currency Bitcoin, at the "Bitcoin Change" shop in the Israeli city of Tel Aviv. (Photo by JACK GUEZ / AFP) (Photo by JACK GUEZ/AFP via Getty Images)
A picture taken on February 6, 2018 shows a visual representation of the digital crypto-currency Bitcoin, at the "Bitcoin Change" shop in the Israeli city of Tel Aviv. (Photo by JACK GUEZ / AFP) (Photo by JACK GUEZ/AFP via Getty Images)

As many as one in five Americans have invested in crypto.

For some, it’s been a financial miracle. But others have lost it all:

"I sat there and I sat for a long time before the Ponzi obviousness came out," listener Amos Iriqui says. "I'm like, this is a Ponzi scheme. Only the rich that have enough money to profit are going to profit."

Today, On Point: The crypto market is in meltdown, with $2 trillion lost so far. Could it pave the way to new regulations?

Guests

Hester Peirce, one of the five commissioners of the Securities and Exchange Commission. She is speaking on her own behalf, not on behalf of the SEC or her fellow commissioners. (@HesterPeirce)

Molly White, software engineer who maintains the blog Web3 is Going Great, a site documenting the scams and crashes of the crypto world. (@molly0xFFF)

'This Is A Ponzi Scheme': Listener Amos Iriqui On The Crypto Craze

One in six Americans have invested in crypto, according to Pew Research Center. But the crypto craze hasn't swept across societal society evenly. A recent NBC poll found that half of men in the United States between the ages of 18 and 49 have dabbled in crypto, the highest share of all demographic groups. A quarter of Black American investors owned cryptocurrencies at the start of this year, compared with only 15% of white investors, according to the Financial Times. Here's one listener's story:

AMOS IRIQUI: My name is Amos Iriqui. I am actually 40 now, and I am in Los Angeles. I want to say it was last year during Elon Musk's hype, and the Dogecoin hype and all that kind of stuff. ... PayPal gave you the option to have it in your phone, so you can drop anything in there real quick and you have some money invested in crypto. Now, in my case, I saw it as a secondary kind of banking account and I can get a little bit of dividends, kind of. Like other people do with the real serious money. But in my case, it's 20 bucks. I just happened to end up living in my car because of circumstances, because, you know if you're in L.A.

But this one made me laugh, because I was in my car and able to get even more broker than I am. Something about the convenience, then I think that's where it goes back to the PayPal thing. Like I'm in my car and I'm still investing in crypto. But something about it ... when people were talking about hyping other coins and this, that. It started drawing up red flags to me, started sounding or feeling like something weird. And I was starting to sit there and thinking of how much money was I truly making when I was investing here. But how much was I risking, if also tomorrow it wiped out?

It all started to get like, you know what? I think I'm good. And that's when I started taking it a little bit a step back. But sure enough, I just kept my eye on the little thing because it's better than PayPal. So it still showed me how much cryptos worked, and then it just plummeted. I'm like, Whoa. And the worst part is that some of my friends that they told me, if I invested in crypto because I'm a technological, somewhat savvy guy, I said, Yeah. So they took it as, Well, screw it, I'll invest in crypto. I don't know how much they lost in this. People that have like, you know, they can invest a household worth, like a half million. Yeah, of course they're going to take the ball on half a million dollars, because they have half a million dollars.

So, yeah, that's why I said, this is a Ponzi scheme for people that have more money to to make than it is for any regular guy to say, I got something invested in it. Now, mind you, I do understand that it's also a financial transaction method, but even that, even that. So the machine that minds the coin, that makes the transaction, kind of gets a certain small percentage, but still the actual value of that is not worth it. So I'm like, this is all a setup. This is all not worth it. This is even environmentally an F-you.

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And that's when I quit. One of my friends is like, that seems like a good investment for the future. I'm like, I'm just playing with it. And before I even got to that, I'm just playing with it. They told me they have this much invested. It lives out the hope of someone getting out of their situation. People that have money, they're not living off the hope. They're just like, Well, if I make more money, cool. Or not. Well, that's the breaks. That's the breaks is not an option for the lower people. And the lower people are the ones that felt the most of this.

Interview Highlights

On what cryptocurrencies are

Molly White: "I think it's fairly safe to say that they're not currencies, despite the name. They don't function particularly well as currencies. Because it's difficult to spend something that might double in value overnight or half in value overnight. The feature of a currency that you want is that it's a stable value, which none of the cryptocurrencies tend to be.

"It's also pretty unsafe to call it an investment, I think in the same way that you probably wouldn't call going and playing roulette an investment. It's such a risky endeavor that I don't think it could responsibly be described as such. So I referred to it as more of a speculative asset. You know, it's something that you can basically gamble on in the hopes that it might go up in value, but with the understanding that it very well go to zero."

When you're buying a crypto asset, what exactly are you buying?

Molly White: "You are basically buying an electronic record. You know, there is no commodity behind it. There is no paper banknote. You are just investing in a record, in a database somewhere."

On the state of crypto

Hester Peirce: "I think it's also important to remember that we can paint with a pretty broad brush and talk about crypto in general, but there are obviously many different aspects to it. And some of them are the ones that Molly was talking about, where it's just people saying this is the latest fad, and I'm going to carry out my fraud using the crypto label. But there is a lot of interesting experimentation also going on in the crypto space. So I think taking a step back, the idea is that typically we've had to look to intermediaries, we've had to run financial transactions through intermediaries, because otherwise you have no way of knowing that if you send money to someone else, that that money is going to get to the other person.

"We want to solve for the double spend problem, that if it's an electronic transaction, maybe you could send something. But how do you know that that person isn't also sending it to someone else? So crypto is an interesting way to remove the intermediaries and to solve this problem, and allow people to interact peer to peer.

"And there are a lot of other interesting things that are happening in this space, smart contracts which allow you to set up sort of automated payments that payout based on the satisfaction of certain criteria that you can build into the code. So there's a lot of potential there. And I think it's important when we look at, from a regulatory perspective, when I look at what's happening, I mean, one, I say we should have, as many people, including many people in the crypto industry, were calling for. We should have put a better regulatory framework in earlier, and I think that could have prevented some of the problems we see.

"And second, I think a lot of the problems that you're seeing play out actually are very consistent with problems that we see in the traditional financial system. They're problems related to large intermediaries, they're problems related to overleverage, over exposure to certain counterparties. And these are things we're all familiar with. And, you know, this is a reminder to all of us that just because you call something crypto doesn't mean that you won't run into the same kinds of problems you run into in the traditional financial system, if you have those same intermediaries doing those same things."

On misconceptions about innovation in crypto

Molly White: "I think the potential for innovation in crypto, and with blockchain technology more generally, has been quite overblown and has been used to some extent as an excuse to not heavily regulate the sector. Myself and a group of more than 20 other software engineers and technologists, along with more than a thousand signatories from elsewhere in the industry, signed an open letter recently to Congress just basically begging them to take a more skeptical approach towards regulating and legislating in the crypto ecosystem. Because we feel that the technology really does not have the potential that its boosters have been claiming it has."

On the Senate proposal to regulate crypto

Hester Peirce: "That bill, it's a very large bill. And I think one of the reasons that people were excited about it is because they have been calling for a regulatory framework for some time. And this is a good starting point. I think the senators have argued that it's a starting point for discussion. And so I can't weigh in on the legislation itself. In terms of CFTC, S.E.C. or banking regulators, each regulator has a different role to play in regulating crypto. And I think it's up to Congress, ultimately, to make those determinations.

"But they're certainly I mean, I think the areas we need to focus on, first financial education is really important to remind people that when you're going for large rewards, you're taking risk. And you have to take that into account. Second, transparency is important. So I called, for example, for transparency in connection with initial coin offerings. When people are doing these coin offerings, what information do people who are buying those need? I put out a specific proposal on that. We can think about regulating stablecoins, making sure that they're reserves backing the stablecoins. We can think about how should exchanges that trade crypto be regulated? Should that be the FCC, the CFTC or some combination of the two? There are a lot of different aspects that we can be working on concretely, and we can be doing some of that without congressional involvement. Some of it will require congressional involvement."

If you had one or two rules about what you think crypto regulation should look like, what would they be?

Molly White: "I think my strongest opinion is that regulators and legislators need to stop with the idea that in order to not squash innovation, there should be very little regulation. Because we've seen very little regulation, and it has been an absolute disaster so far."

This program aired on July 8, 2022.

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