California’s Sherman leading resistance to crypto
WASHINGTON — Rep. Brad Sherman’s views on cryptocurrencies set him apart from most in Congress. The Northridge Democrat isn’t just wary of crypto: He views it as a threat to national security.
Sherman, who chairs a House subcommittee on investor protection, may be the leading crypto skeptic on Capitol Hill.
There’s a growing movement in Congress to better regulate the nearly $2-trillion industry, which is 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,” he told The Times, noting that the industry is a big 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 investors being defrauded. But he also fears that crypto poses a systemic threat, enabling criminals and human rights abusers and undermining the dollar’s dominance. Crypto advocates counter that the technology can help persecuted people get their money out of authoritarian countries.
Sherman is particularly concerned about services like Tornado Cash, a crypto mixer that the Treasury Department has accused of laundering more than $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 to the Ukrainian government and praised the platform’s ability to hide donations from Moscow. People living under authoritarian regimes sanctioned by the U.S. may have legitimate reasons to evade 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, chief strategy officer at the Human Rights Foundation, told The Times. “I’m sure they’d love to just use the dollar like we do in America. But ... they [can’t]. And bitcoin is a really nice thing to have.”
Argentina and Cuba have seen increased use of bitcoin due to inflation or strict sanctions, Gladstein said. More than 400 Western Union branches closed in Cuba while former President Trump was in office, making it harder for Cubans in the U.S. to send money home. Many 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 industry say crypto’s use by people of color shows that it’s an alternative for unbanked communities. Nearly 40% of Black Americans under 40 have invested in cryptocurrencies, according to a report by Charles Schwab and Ariel Investments.
“A disproportionate number of people who got subprime loans were people of color too,” Sherman countered, referring to predatory loans before the 2008 market collapse.
Sherman is torn about how best to protect crypto investors. He admitted that there is little he can do to stop people from risking 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.”
Absent a ban, Sherman believes crypto should be regulated by the Securities and Exchange Commission, which oversees stocks, bonds and other securities. Since 2017, the SEC has brought more than 80 enforcement actions related to cryptocurrencies; in May, the agency said it would double the number of enforcement personnel in its crypto unit to 50.
Sherman believes the SEC is right for the job due to its size, expertise and aggressive enforcement, and to crypto’s similarity to a stock or security. But he may be losing ground.
Last month, Sens. Debbie Stabenow (D-Mich.) and John Boozman (R-Ark.) introduced a bill that would define most cryptocurrencies as commodities, rather than securities, and bring their regulation under the Commodity Futures Trading Commission, which oversees the trading of corn, oil and meats. The bill would require crypto trading platforms to register with the commodities agency.
Some of the largest crypto exchanges have welcomed more federal oversight. Sam Bankman-Fried, the billionaire founder and chief executive of FTX, has lobbied for regulation under the commodities agency. Coinbase, one of the largest exchanges in the U.S., also told The Times it supports regulation.
The Stabenow-Boozman bill would encourage exchanges and regulators to be more aggressive about combating “abusive trading practices” such as “pumpand-dump” schemes, in which an influencer hypes up a cryptocurrency and sells high before it crashes. The bill would also require platforms to report users’ demographics in order to tailor regulation.
Sherman, Stabenow, Boozman and top crypto firms 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 Better Markets agree with Sherman that the SEC should take the lead on crypto regulation. Current and former financial regulators have published dueling Wall Street Journal op-eds on the subject in recent months. And the industry has spent tens of millions of dollars in the last 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.