Crypto and Currency: A Discussion of Economic Freedom

By Noah Busbee

INTRODUCTION

Coinbase, the largest cryptocurrency trading platform in the United States and one of the largest cryptocurrency exchanges in the world, has recently been the subject of intense ongoing litigation from the United States Securities and Exchange Commission (United States Securities and Exchange Commission, 2023). The SEC alleges that Coinbase has been operating as an unregistered broker of securities. While Coinbase and other cryptocurrency exchanges argue that crypto-assets do not meet the established definition of a security, the SEC has used statements by companies, including Solana Labs, alongside certain specific legal arguments to propel the idea that crypto assets are securities that can be regulated by the SEC (Godoy and Lang, 2024).

Of course, the United States government has a particularly strong interest in regulating cryptocurrency. Competition within currencies creates an inherent sense of instability for the US Dollar. While the Federal Reserve maintains that the dollar has held a stable role in global transactions, there are scenarios that could erode the dollar’s status, such as positive developments outside the U.S. that boost the credibility of alternative currencies (Bertaut, Beschwitz, and Curcuru, 2023). A quote from that same report notes “a candidate reserve currency must be perceived as safe and stable” (Wise, 2023, p. 6). But with their reputation for volatility and exposed hacking attempts, how could cryptocurrencies pose a threat to tangible government sanctioned currencies? Numerous organizations, including the International Monetary Fund, are calling for increased regulation of the crypto ecosystem to address such vulnerabilities (Drakopolous et al, 2021). All of the recommendations call for increased regulation of cryptocurrencies.

This commentary will contain a brief exploration of why and how the US government and the SEC are regulating cryptocurrencies. Subsequently, there will be a discussion of the legitimacy of these regulations, their impact on economic and financial freedom, and cryptocurrency as a rejection of traditional financial authority. Cryptocurrencies represent a resistance to government-controlled currency and intermediary economic interventions and elevate financial freedom through contributing to the privatization, decentralization, and accessibility of markets.

The SEC’s Argument and Financial Authority

Using the tools of litigation, the SEC seeks to legally compel Coinbase, and ultimately all cryptocurrency exchanges, to register their sales of securities. This in itself is representative of the attempted dominance of the U.S. dollar, and the institutions supporting it, over any alternative currency. A report from the U.S. Treasury reads, “Crypto-asset activities could pose risks to the stability of the U.S. financial system if their interconnections with the traditional financial system or their overall scale were to grow without adherence to or being paired with appropriate regulation, including enforcement of the existing regulatory structure,” (Financial Stability Oversight Council, 2022, p. 7). The recommendations from the report include developing and enforcing additional regulations and legislation designed to provide more authority for financial regulators over crypto assets that are not securities (Kelley, 2022). The emphasis on regulation, especially in tandem with the SEC’s ongoing litigation, emphasizes the desire the U.S. government has to control the cryptocurrency market.

There are specific international situations in which cryptocurrencies might exacerbate instability in global trade. For instance, exchange rates of national currencies can be influenced by cryptocurrencies. “If there is an increase in interest and investment in a particular cryptocurrency, the national currency could weaken as investors turn to digital assets” (Sukomardojo et al, 2023, p. 5). Self-preservation would thus dictate that cryptocurrencies must be controlled to mitigate risks to the rest of the global economy.

Additionally, the government wants to regulate cryptocurrencies because, when regulated, crypto can be taxed more effectively and provide another source of revenue for the government. And as previously mentioned, crypto will never be able to outcompete the US Dollar if crypto is controlled by the US government. A primary source of the desire for regulation is to reinforce the stability of the US Dollar as the primary international currency.

Fiat Currency, Stablecoins, and Financial Freedom

Despite the tense political and legal situation surrounding these exchanges, the market operates on consumer preferences and desires. Instead of playing global politics, there are millions of Americans and hundreds of millions of people worldwide who engage with cryptocurrency for a variety of reasons (Blackstone, 2024). But why use cryptocurrency instead of the stock market or government bonds?

For crypto users, a primary driver in the adoption of cryptocurrency was the narrative of decentralization and the ability to cut out the middlemen in financial processes. The use of crypto bypasses encumbering regulations unduly placed on simple financial transactions, especially in international markets (Anthony, 2023). These range from passively collecting interest on staked crypto to actively trading for NFT’s or other digital goods and services.

Furthermore, cryptocurrencies have more effective methods of preventing corruption. Blockchain, the aggregation of transactional data utilized for tracking cryptocurrencies, has “improved financial institutions’ cross-border transactions,” improved the execution of contracts, created thousands of jobs in the blockchain industry, increased market access for millions of people, created a more transparent documentation system through the blockchain, and eliminating the need for third parties to intervene in daily financial transactions (Pelicoin, 2023). Additionally, crypto enables consumers of all levels an increased access to markets and economic participation (Marweg, 2019). Most importantly, though, is the independence from traditional governing financial structures. Eliminating unnecessary regulatory burdens and intermediaries in private financial exchanges enables anonymity in direct transactions (Kaduthanum and Norton, 2024). This aspect of anonymity along with the removal of intermediaries were primary drivers for the initial adoption of cryptocurrencies (Cuemby, 2022). The intersection of privacy, auditability, and global accessibility, where crypto finds itself operating, has an increasing market presence. Crypto could never have gained traction in the market, as is with any product, without a large amount of people buying into a new system. Blockchain owes much of its mainstream popularity to the proliferation of cryptocurrency, with Bitcoin in particular garnering a lot of public attention for many years.

These benefits combined with a growing concern for stability of the U.S. dollar, recent inflationary pressures, and a ballooning national debt has contributed to the recent surge in adoption of cryptocurrencies (Toppa, 2024). The advent of increasingly diversified currencies, and the complementary increasing proliferation of the necessary technology to both use and create additional currencies, forges cryptocurrencies as a path to future economic development.

But cryptocurrency does not always act as a completely separate financial entity. In fact, many businesses have begun using stablecoins, or cryptocurrencies which are pegged to the value of certain fiat currencies like the US dollar (PYMNTS, 2024). There are numerous operational benefits to adopting a stablecoin, including the blockchain record that can provide an authentic audit of expenses and the immediate access to liquidity, in turn circumventing intermediary banks or payment processors. These efficiencies could prove invaluable given the increasingly fast-paced technological and financial spaces.

The downside of these stablecoins is regulatory capture. Both the United States and British governments have, for the price of stability, attempted to ban unregulated or unapproved stablecoins. Furthermore, they are entrenched in the same financial system that many Americans are rejecting as strong and viable institutions (AP-NORC, 2023).

Stablecoins undoubtedly have an important role in creating broader access to the decentralized market and increasing market opportunities. However, their specific relationship to existing fiat currencies makes them susceptible to the very regulations that users of other cryptocurrencies attempt to avoid.

The Future of Crypto

Narratives are powerful in the space of cryptocurrency. It is the narrative which propels new tokens into strong use cases. The narrative surrounding crypto is, right now, one of fear. Volatility in markets, scams amuck, and not to mention the illegality according to the SEC, are propelled by institutions and media alike to maintain the U.S. Dollar as the predominant economic tool in the United States. Russia is completely banning all trade of non-ruble digital assets, and countries with similar autocratic ideologies are likely to follow (Dioquino, 2024). The technological space around cryptocurrency is developing at such a rapid rate that countries either scramble to regulate and thus benefit from these technologies, or reject them completely.

But as technology continues to advance, particularly in the artificial intelligence space, crypto will undoubtedly advance alongside it. There are thousands of cryptocurrencies available now, some tied to specific functions, many decentralized, and many that fail. But Bitcoin recently reached an all-time high price, and cryptocurrencies like Solana, Ethereum, or XRP are operating with hundred-billion-dollar market caps. This ever-developing technology serves as a space for economic exploration and an opportunity for millions to engage in a decentralized and privatized marketplace.

As a representation of potential economic freedom, cryptocurrencies pose threats to the established economic order. But they also provide opportunities. There are established administrative benefits, and as cryptocurrencies continue to grow, the potential for expansion into previously unbanked markets will improve accessibility and contribute to a flourishing digital marketplace.

References

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Bertaut, C., Beschwitz, B. von, & Curcuru, S. (2023). “The international role of the u. S. Dollar” post-covid edition. https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-us-dollar-post-covid-edition-20230623.html

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About the Author

Noah Busbee is a recent graduate of the University of Richmond, finishing magna cum laude with a double major in PPEL (Philosophy, Politics, Economics, and Law), with a concentration in Politics and History. Noah’s interests reside primarily in researching contemporary and modern political philosophy. Specifically, Noah hopes to focus on political-legal theory, the ethics of punishment, the impact of the criminal justice system on family structures and functions, and the political theory of Libertarianism.