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Senate Banking Chair Floats Crypto Ban. He Realizes How Difficult It Would Be.

Bitcoin and other cryptos are largely unregulated, with most activity taking place offshore.

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Ozan Kose/AFP via Getty Images

The bankruptcy of crypto exchange FTX amid allegations of widespread fraud has spurred soul searching in the digital asset industry and beyond—including among lawmakers and regulators who wonder how it could have been prevented.

One idea, floated by the chairman of the Senate Banking Committee, is to ban cryptocurrencies altogether.

“I share that thought,” Sen. Sherrod Brown (D., Ohio) said Sunday in an interview on NBC’s “Meet The Press,” when asked whether regulation only gives legitimacy to crypto, which some may think should just be banned.

The senator said that an immediate course of action is to have the Treasury Department embolden federal agencies such as the Securities and Exchange Commission and Commodity Futures Trading Commission.

“We want them to do what they need to do,” Brown said, “at the same time maybe banning it—although banning it is very difficult because it will go offshore, and who knows how that will work.”

The senator is right: Banning crypto would be difficult. Much of the world’s crypto activity already takes place offshore, where the likes of Binance and Deribit dominate as venues for the trading of digital assets and their derivatives, such as token options.

While crypto has recently become a much hotter topic on Capitol Hill, the push to regulate digital assets has been seen more as a catalyst for institutional investors to enter the space than a matter of survival.

A U.S. ban on crypto could spell real problems for companies such as U.S.-regulated broker
Coinbase Global
(ticker: COIN)—and possibly prevent a new wave of investors from diving into the space—but it is unclear how effective it might be more broadly.

“One in six American households own crypto, a domestic ban at this stage would only lead to more FTX-like situations where Americans are forced to interact with off-shore exchanges that have no regulatory oversight,” said a Coinbase spokesperson. “Congress should focus on passing workable, comprehensive federal crypto legislation that protects consumers, enables innovation, and bolsters American competitiveness.”

Some American traders already use crypto services that are hosted offshore and unregulated in the U.S.—and it is not as if a U.S. ban would stop crypto trading in other respected, regulated jurisdictions. The European Union has moved swiftly this year to usher in comprehensive regulation of digital assets, and Europe is home to a number of important companies in the crypto economy.

Lessons from China, which banned crypto in 2021, offer little to bolster the case for the utility of an outright ban.

While crypto mining and transactions remain illegal in China, the country was still the second-biggest
mining hub, with more than 20% of the global market share as of the beginning of this year, according to the University of Cambridge’s Centre for Alternative Finance. China, despite this crypto ban, still ranks 10th in the world on the research firm Chainalysis’s 2022 Crypto Adoption Index.

Brown mulling the notion of a crypto ban looks more indicative of the shock and horror hanging over the digital asset industry after FTX’s meltdown than a concrete policy option.

Write to Jack Denton at jack.denton@barrons.com

Credit: marketwatch.com

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