Cryptocurrency moguls heavily backed Donald Trump’s bid for the presidency, and he has already begun to pay them back by deregulating the crypto industry. Combined with Mr. Trump and his family’s own dive into the market, that may enrich him and his circle. But it may also worsen all kinds of criminal activity and risk the health of our financial markets.
In the last several years, the Securities and Exchange Commission was moving to regulate crypto, recognizing its potential to destabilize traditional finance. Historically, the S.E.C.’s enforcement priorities have shifted only slightly from administration to administration. They are rarely, if ever, abandoned altogether.
Mr. Trump has ended this tradition. In little more than three months, the S.E.C. has eliminated its crypto-enforcement program, dismissing, closing or “pausing” nearly every crypto-related lawsuit, appeal and investigation. The S.E.C. has also, among other steps, gutted its Crypto Assets and Cyber Unit, dropping the word “crypto” from its name, slashing its ranks by 40 percent and reassigning its top litigator to the I.T. department.
Meanwhile, Mr. Trump and his family have launched numerous crypto ventures, including starting up their own crypto company and currency, which help investors anonymously fill the Trump coffers. The Trumps have said they will partner with the Singapore-based crypto exchange Crypto.com to introduce a series of crypto-related funds and kicked off $Trump and $Melania memecoins — a risky type of crypto derived from internet memes or trends. (Dogecoin, a memecoin favored by Elon Musk, inspired the name of his Department of Government Efficiency.) In February, the S.E.C. declared that memecoins were entertaining novelties and collectibles, not “securities,” and announced that it would not subject them to oversight.
Bloomberg News recently estimated that the paper value of the Trump family’s crypto empire is nearing $1 billion. Our society may pay a price for this administration’s regulatory about-face.
For 16 years, crypto enthusiasts have promised a “fourth Industrial Revolution,” pledging that crypto technology would transform the planet by democratizing wealth. Yet while other digital payment systems backed by established financial institutions, like Apple Pay, have flourished, cryptocurrency has yet to prove that it has any practical and legitimate utility.
Instead, what cryptocurrency has given our world is a shield that facilitates crime, from sex trafficking to ransomware attacks, drug dealing to child pornography. North Korea has become a crypto superpower, stealing over $6 billion worth of crypto through hacking over the past decade. By using unregulated offshore exchanges to convert the stolen crypto into cash, North Korea has funded its nuclear weapons program and shored up its sanctions-ravaged economy.
It was only a couple of years ago that the collapse of a leading crypto exchange, FTX, amid financial mismanagement and fraud undermined investor and public trust in the crypto industry. And it was only 17 months ago that Binance, another large crypto exchange, pleaded guilty to money-laundering violations, as terrorist financing, hacking and drug trafficking proliferated on its platform.
That was before the second Trump term. The S.E.C. suspended its civil fraud case against Binance in February. Company executives have met with Treasury Department officials to discuss loosening government oversight, The Wall Street Journal reported, while Binance has been exploring a deal to list a new cryptocurrency from a venture backed by Mr. Trump’s family.
Crypto is also making more inroads into the world of traditional finance. Last month, federal regulators reversed a policy that required banks to obtain approval before offering crypto-related products and services. And both the House and Senate are debating bills that would provide a new regulatory framework for stablecoins, a type of crypto intended to maintain a stable value and allow for easier trading of different crypto currencies, with the aim of further integrating them into the banking system.
This state of affairs brings to mind a similar moment in our history — the 1920s, when insider trading, market manipulation and lack of transparency destroyed public confidence in the system and helped set off the stock market crash that in turn played a part in the Great Depression. The S.E.C. was created to restore trust and bring order to our capital markets, something it did for the next nine decades.
By directing the S.E.C. to abdicate its critical mission of investor protection, Mr. Trump is unnecessarily endangering our financial system. Whether he is doing so to keep his promise to crypto-donors or in a zeal to cash in (or perhaps even both), that is a troubling development not just for investors and banks, but for all of us.
John Reed Stark is the founder and a former chief of the S.E.C.’s Office of Internet Enforcement. Lee Reiners is a lecturing fellow at Duke University.
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