caliskan1_Smith CollectionGadoGetty Images_cyrpto Smith Collection/Gado/Getty Images

Regulation, Not Crypto, Is Broken

The US Securities and Exchange Commission’s lawsuits against Binance and Coinbase, the world’s two largest cryptocurrency exchanges, demonstrate a fundamental misunderstanding of this new form of money. Enacting meaningful regulations requires a fundamental shift in perspective and the creation of a central bank digital currency.

NEW YORK – When the Venetian merchant Marco Polo traveled the Silk Road in the thirteenth century, he encountered not only unfamiliar peoples, but also new (to him) forms of finance. In China, he was shocked to learn that Kublai Khan had introduced paper money. It was lighter, easier to transfer and store, and more valuable than the metal coins packed in his purse. After returning to Venice, Marco Polo taught his fellow merchants how to use the Khan’s innovation. Even though some rejected the flat, foldable currency, arguing that it was no gold and never would be, paper money would change the world.

Like those stubborn thirteenth-century merchants, many today refuse to accept the newest form of money: cryptocurrency. The United States Securities and Exchange Commission (SEC) recently filed lawsuits against Binance and Coinbase, the world’s two largest cryptocurrency exchanges, accusing them of operating as unregistered securities exchanges. For years, Coinbase, a publicly traded company with a large US customer base, has been asking American regulators for reasonable rules, to no avail.

Instead, government agencies have been confused about how to define crypto, often providing conflicting views. For the SEC, crypto is an asset that behaves like a security, while for the Commodity Futures Trading Commission (CFTC), it is a commodity. The Internal Revenue Service (IRS), meanwhile, treats it as property. Like the fable of the blind men and the elephant, each sees only one aspect and believes it to be the whole. This apparent lack of understanding precludes effective regulation.