Sherman, who chairs a House subcommittee on investor protection, may be the leading crypto skeptic on Capitol Hill.
A growing movement in Congress wants to bring more regulation to the nearly $2-trillion crypto industry, which is currently overseen by a patchwork of state laws and federal agencies.Sherman, however, doesn’t just want to regulate cryptocurrencies, he wants them outlawed.
“I don’t think we’re going to get [to a ban] anytime soon,” Sherman told The Times, noting that the crypto industry is a powerful player when it comes to campaign donations .
“Money for lobbying and money for campaign contributions works, or people wouldn’t do it; and that’s why we haven’t banned crypto.We didn’t ban it at the beginning because we didn’t realize it was important, and we didn’t ban it now because there’s too much money and power behind it.”
Like most crypto critics, Sherman worries about individual investors being defrauded.
But Sherman also worries that crypto poses a more systemic threat, enabling criminals and human-rights abusers and undermining the dominance of the U.S.dollar.
Crypto advocates counter that the same technology can help persecuted people get their money out of authoritarian countries.
Advertisement Sherman is particularly concerned about services like Tornado Cash, a cryptocurrency mixer that the Treasury Department has accused of laundering over $7 billion since 2019 by taking in payments and shuffling them through other accounts, making them nearly impossible to trace.
Not everyone who uses such services is a criminal.Vitalik Buterin, co-founder of the cryptocurrency Ethereum, admitted to using Tornado Cash to donate cryptocurrency to support the Ukrainian government, and praised the platform’s ability to hide supporters’ donations from the Russian government.Many people who live under authoritarian regimes that are sanctioned by the U.S.may have legitimate reasons to want to evade U.S.
sanctions, advocates say.
“For people in places like Iran, Palestine, Cuba or China, bitcoin is not their first [option], it’s their plan B,” Alex Gladstein, the chief strategy officer at the Human Rights Foundation and a prominent bitcoin defender, told The Times.“I’m sure they’d love to just use the dollar like we do in America.But guess what, they [can’t].And bitcoin is a really nice thing to have.”
Countries such as Argentina and Cuba have experienced an increase in use of bitcoin because of inflation and, in the case of Cuba, strict sanctions, Gladstein said.
Over 400 Western Unions closed in Cuba during former President Trump’s term in office, making it harder for Cubans in the U.S.to send money back home.
So Cubans have turned to apps like Muun Wallet to send and receive money, and some even use bitcoin to pay for everyday necessities, Gladstein added.
“People are trapped between hyperinflation, currency devaluation, and capital controls on the one hand, and U.S.sanctions on the other,” he said.“So they turned to bitcoin because it’s been remarkably potent against both sorts of evils.”
Many in the crypto industry also point to its use among people of color as evidence that it can serve as an alternative for unbanked communities.Nearly 40% of Black Americans under 40 have invested in cryptocurrencies, according to a recent report by Charles Schwab and Ariel Investments .
“A disproportionate number of people who got subprime loans were people of color too,” Sherman counters, pointing to the racial disparity in who received predatory loans during the 2008 market collapse.
Sherman is torn about how best to protect crypto investors.He doesn’t think people should be blatantly defrauded, but admitted there is little he can do to stop people from recklessly spending their money.
“It is hard to be running the subcommittee dedicated to investor protection in a country in which people want to wager on [meme coins],” he said.“Cryptocurrency is a meme you invest in, in the hopes that you can sell it to somebody else before it tanks.
That’s the nice thing about a Ponzi scheme.”
Absent a ban, Sherman believes that crypto should be regulated through the Securities and Exchange Commission, the same regulatory body that oversees stocks, bonds and other securities.Since 2017, the SEC has brought just over 80 enforcement actions related to cryptocurrencies; and in May , the agency said that it would double the number of enforcement personnel in its crypto unit to 50.
Sherman believes crypto should be regulated by the SEC because of the agency’s size, expertise, aggressive enforcement actions and because of crypto’s similarity to a stock or security, he said.However, Sherman may be losing ground.
Last month, Sens.Debbie Stabenow (D-MI) and John Boozman (R-AR) introduced a bill that would define most cryptocurrencies as commodities rather than securities, and bring their regulation under the Commodity Futures Trading Commission — the same agency that oversees the trading of corn, oil and meats.
Stabenow and Boozman’s bill would require crypto trading platforms — including FTX, Coinbase and others — to register with the CFTC.
Some of the largest cryptocurrency exchanges are welcoming more federal oversight.Sam Bankman-Fried, the billionaire founder and CEO of FTX, has lobbied politicians to bring regulation under the CFTC.Coinbase, one of the largest exchanges in the U.S., also told The Times it supports regulation of the industry.
The Stabenow and Boozman bill would encourage exchanges and regulators to be more aggressive about combating “abusive trading practices,” such as pump-and-dump schemes in which an influencer hypes up a cryptocurrency and sells at the high price before it crashes.The bill would also require platforms to report demographics of their users, and use that data to tailor regulation.
Sherman, Stabenow, Boozman and top crypto firms all agree that the industry should be regulated.
But they disagree strongly about the details — and when trillions of dollars are at stake, details can be worth billions.
Market-reform groups such as the nonprofit Better Markets agree with Sherman that the SEC should take the lead on crypto regulation.Current and former financial regulators have spent the past months publishing dueling Wall Street Journal op-eds on the subject.And the crypto industry has spent tens of millions of dollars over the past year on political donations and lobbying Congress.
Sherman may dream of banning crypto, but for now, it’s far from clear he’ll even win the battle over how to regulate it..