A tweet from Conservative MP Michel Rempel Garner caught my eye Monday morning (I’m still able to see her tweets because I’ve never been so bold as to lock horns with her online where she’s notorious for blocking anyone who disagrees with her). It said:
Tomorrow morning, my bill regarding a policy framework for web3 based digital assets (eg. cryptoassets) will be debated.
My arguments for why the bill should pass are here:https://t.co/k723zcLkqN
— Michelle Rempel Garner (@MichelleRempel) November 21, 2022
In the piece, published on her Substack (called “MRG,” which I read as “Merge”) Rempel Garner writes:
The FTX scam screams out for legislative action to protect both consumers and innovators.
The “FTX scam” is the collapse of a crypto exchange run by an “innovator” named Sam Bankman-Fried, whose particular “innovation” was apparently to gamble with his clients’ money which is a) not particularly innovative and b) not something that makes him worthy of protection, unless she means from himself. (If you want a better description of Bankman-Fried’s shenanigans, I recommend anything Ed Zitron has written about him.)
As for crypto “consumers”—whom she seems to distinguish from “investors”—I can only assume she means people who use cryptocurrencies to buy goods and services, i.e., literally no one in this country except Conservative leader Pierre Poilievre (who did not, it should be noted, enjoy Rempel Garner’s support in his leadership bid) although he seems to use it only to buy shawarma from a shop in London, Ontario that accepts Bitcoin.
The distinction between consumers and investors doesn’t really matter, though, because neither are mentioned in Rempel Garner’s, Bill C-249, which saw its first reading in early February. The bill calls on government to consult with people who have “demonstrated experience working in the cryptoasset sector” with an eye to developing “a national framework to encourage the growth of the cryptoasset sector.” That framework must:
…among other things, focus on lowering barriers to entry into the cryptoasset sector while protecting those working in the sector and minimizing the administrative burden.
Rempel Garner fleshes her ideas out somewhat on her Substack, in an August piece she wrote:
The right approach involves government clearly signalling support for development of the sector while applying safeguards already present in other asset classes to crypto assets on a like-equals-like basis.
To do this, industry and governments need to get together, figure out a minimum level of regulations needed to provide investment stability and consumer protection needed, without adding undue red tape, and make it so.
Because you can never go wrong with light, industry-friendly regulation, can you?
Quasi-banks
The appeal of cryptocurrency to many is that it allows them to sidestep the traditional banking system and I get this—banks are terrible in many ways.
But what the FTX crash—and the crashes of the Voyageur and Celsius exchanges that proceeded it—have shown is that relying on these exchanges to store your money is like relying on “uninsured, quasi-banks.” William D. O’Connell, a PhD candidate at U of T, wrote an essay on the subject for The Conversation in August—that is, before the FTX implosion—in which he noted that:
In companies like Celsius and Voyager, customers’ accounts were not held separately in their own wallets, but rather held in a pool owned by the platform. The platform would use this pool of money to make loans (often to other crypto firms) or to engage in its own speculative investing (often in crypto assets). When depositors cashed out, they were paid from the pool, which was able to cover normal on-demand withdrawals, but did not have enough cash to handle everyone pulling out simultaneously…
When crypto prices collapsed, these firms’ loans went belly up and some were forced to suspend withdrawals. When Celsius filed for Chapter 11 bankruptcy, their depositors learned their accounts were worthless, having been gambled away by the company.
Banks, O’Connell says:
…take on more risks and fail more often. Because banks use customer deposits to make loans, banks are vulnerable to runs. This is why most high-income countries — including Canada — have deposit insurance and regulate banking more than other financial services.
There’s a rather large gap between Rempel Garner’s “minimum level of regulations,” on the one hand, and “deposit insurance,” on the other, and I’m curious to know how Parliament—assuming this bill is passed—will bridge it.
Fun with Market Cap
At the heart of Rempel Garner’s interest in crypto is The One That Got Away. Canada’s lack of light, industry-friendly regulation in our cryptoasset sector has, she writes:
…cost our economy jobs and capital. For example, Canadian Vitalik Buterin, founder of the blockchain Ethereum, years ago chose to base in Switzerland instead of Canada. This was due in part due to the Swiss having a comparatively clear legal framework for the treatment of crypto assets. At writing, Ethereum’s market capitalization is nearly $150B USD. To say having Vitalik’s [she’s on a first-name basis with Buterin?] organization base in Switzerland was a loss for the Canadian economy is a sadly hilarious understatement.
Or is it just a hilarious statement, period?
Ethereum’s market capitalization of “nearly $150B USD” on November 20, when Rempel Garner was writing, is impressive only if you don’t know that Ethereum’s market capitalization a year earlier was just above $500B USD (and as I write, two days after Rempel Garner’s post, it’s at $135B USD).
Mentioning a cryptocurrency’s market cap without mentioning its 73% year-over-year decline is beyond disingenuous, it’s downright misleading, and really makes me wonder if I can trust Rempel Garner on the subject of cryptoassets.
Nor do I find her case for the industry particularly compelling. Over the summer she offered this summary of the benefits of cryptocurrencies:
…it would be easier to directly transfer financial aid to humanitarian organizations in countries where government corruption is rampant. It could enable the transfer of real estate without government involvement, preventing government erasure of property rights — a particular problem in countries with despotic leaders. It also could enable the transfer of funds to human rights activists in places with authoritarian rule. It could make it impossible for an authoritarian government to erase someone’s identity and make it as though they never existed. It could make supply chain management more agile. It could enable things like quadratic voting and financing, that is, a system of direct democracy and direct democratic crowdsourcing of public funds.
None of these seems like a problem Rempel Garner loses sleep over and knowing that she actively suppressed information about Ethereum’s market capital makes me wonder what she’s not telling me about quadratic voting.
Molly White, the crypto-skeptic and software engineer, has called all of these “benefits” into question, pointing out that blockchain enthusiasts tend to start with the solution—blockchain—and then look for problems, while ignoring any easier, non-technical solutions that might present themselves along the way.
White also points out that “currency” is a misnomer for these things, because they cannot be easily traded for goods and services and they fluctuate wildly in value, a point she made recently with reference to an apparently infamous Bitcoin story that I had never heard before, about a Bitcoin engineer who paid 10,000 BTC (about $41) for two pizzas back in 2010. Had he held onto his Bitcoin until, say, May 2021, it would have been worth $365 million. (As of today, November 22, it’s down to a mere $162 million).
How do you budget with a currency like that? “Either we eat out tonight OR we sock that pizza money away and in a few years, we can use it to buy an island in the Caribbean.”
White is willing to grant that cryptoassets do have one actual use—they are good for speculation, the purpose for which most people buy Bitcoin (or Ethereum or Doge Coin or any of the literally thousands of other cryptocurrencies). Most people, I hate to say it, are not using their cryptocurrency to fund humanitarian organizations in corrupt regimes.
But all this talk of regulating crypto may be moot anyway because the exchange crashes and the wild volatility are apparently turning people off the sector: as I was writing this article, I heard a podcaster say that people looking to gamble (to use a more common term for “speculation”) are increasingly turning to sports betting.
And luckily for them, there is no shortage of betting companies ready to assist them, as you probably know if you have watched any form of sporting event lately.
The New York Times is reporting that, in return for millions in fees, US colleges and universities are partnering with online betting companies to “introduce” their students to sports betting, and really, what could possibly go wrong?
Although perhaps a little light regulation might be in order. I’ll be watching for Rempel Garner’s bill protecting the “innovators” in the sports betting industry.
