All Ponzi schemes topple eventually

Celsius Network, a pioneering cryptocurrency bank that boasts more than one million customers, announced last week that withdrawals would be frozen “due to extreme market circumstances”.

Bitcoin fell 15 percent in 24 hours earlier this week to its lowest point since December 2020. TerraUSD, a stablecoin, collapsed last month. This was apparently to destroy investors’ savings. It was designed to function much like a traditional bank account but was supported only by Luna cryptocurrency.

In 1933, Franklin D Roosevelt signed the Banking Act of 33 – also known as the Glass-Steagall Act. This was 89 years ago. It distinguished investment banking and commercial banking – Main Street and Wall Street – in order to protect those who entrusted their savings to commercial banks against losing their money to gambling.

Glass-Steagall’s main purpose was to end the Ponzi scheme which had taken over the American economy in the 1920s, and that led to the Great Crash of 1929.

Americans were making a fortune speculating in stocks and other exotica, which is roughly equivalent to crypto. These risky assets saw their value rise because more investors invested in them.

However, Ponzi schemes eventually fall under their own weight. The 1929 toppling of Ponzi schemes plunged the country and the entire world into the Great Depression. Glass-Steagall Act was one way to restore stability.

The financial trauma of 1929 was forgotten by America in the 1980s. As the stock market rose, speculators realized they could make a lot more money if their money could be gambled with. This was similar to what speculators did back in the 1920s. They convinced Congress to de-emulate Wall Street. They claimed that the United States financial system would lose its competitiveness relative to other financial centres around the globe.

In 1999, Bill Clinton, Congress, and others agreed to end Glass-Steagall.

The American economy became once more a gambling parlour. Wall Street was again nearly doomed by excessive gambling. Ponzi schemes started to collapse in 2008, as they did in 1929.

This time, the US government saved the largest banks and financial institutions. The destruction was contained. Yet, the destruction was contained. Millions of Americans lost their jobs and their savings as well as their homes. Not a single bank executive went to prison.

This brings us to the crypto crash.

Gary Gensler is the current chair of the Securities and Exchange Commission. He described cryptocurrency investments as “rife in fraud, scams and abuse.” It’s difficult to find out who funds loans, where money flows and how easy it can be to cause currency meltdowns.

There are no standards in place for capital reserve management and risk management. There aren’t any transparency requirements. Investors are often unaware of how their money is being managed. Deposits aren’t insured. We are back to the wild west finance of the 1920s.

The value of cryptocurrency had been steadily rising before the crash. It attracted a growing number of investors, some large Wall Street money and celebrity endorsements. All Ponzi schemes eventually fall, however. It looks like crypto is on the verge of falling.

Why is this market not regulated? It is mainly because of intense lobbying from the crypto industry, which wants the Ponzi scheme continues.

Political campaigns are being funded by a huge industry.

It has also hired scores of ex-government officials and regulators to lobby for it. These include three former chairs of the Securities and Exchange Commission, three former Chairs of the Commodity Futures Trading Commission, and three former chairs of the Commodity Futures Trading Commission.

Former Treasury Secretary Lawrence Summers advises crypto investment firm Digital Currency Group Inc. and sits on the board of Block Inc., a financial-technology firm that is investing in cryptocurrency-payments systems.

We should have learned something from the 2008 and 1929 financial market crashes. It’s that regulation is crucial. They can become Ponzi schemes, which eventually leave investors in the dust and destabilize entire economies.

It is time for Congress and the Biden administration to regulate crypto.

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