Recent events in Canada have sparked a global debate about financial censorship and crypto’s potential to combat it.
In the midst of last week’s regulatory news, from rumors of Joe Biden’s upcoming executive order on digital assets to another round of the Russian government’s crypto tug of war, the storyline surrounding the Canadian government’s standoff with the Freedom Convoy was arguably the most consequential for the mainstream narrative on the social effects of crypto. The government’s use of emergency powers to put down a protest movement, combined with the movement’s financial infrastructure serving as one of the main attack vectors, has led many observers to appreciate Bitcoin’s ability to resist state financial censorship with renewed vigor.
If a “civilized” government like Canada’s can arbitrarily cut off a group it doesn’t like from the financial system, then any state, the argument goes, can potentially do the same to any group. While, as is always the case, there is much more nuance to this situation. What matters is that the global audience walks away from the shocking news with a simple, digestible concept. So far, the main takeaway appears to be this: Financial censorship is frightening, but cryptocurrency provides a way around it.
Canada is no longer polite.
Since mid-January 2022, a series of protests and blockades against COVID-19 vaccine mandates has been taking place in Canada. By mid-February, the disruption to transportation infrastructure and the overall economic and social costs of the unrest had prompted the Trudeau government to consider drastic measures, such as invoking the never-before-used Emergencies Act to quell the protests. The measures included broadening the scope of Terrorist Financing rules, with a focus on payment service providers and crowdfunding platforms used by protesters. The Freedom Convoy had amassed a sizable bag of crypto donations by that point, which the government declared fair game as well.
Jesse Powell, co-founder and CEO of crypto exchange Kraken, condemned the government’s actions but stated that if police asked the platform to freeze assets extrajudicially, the platform would “probably consent.” Powell also advised anyone concerned about government overreach to withdraw their funds from centralized custodians and trade peer-to-peer:
Due process is for plebs. Might makes right in Canada. If someone dissents, you just confiscate their wealth, revoke their licenses, exclude them from the financial system and kill their pets. No need to debate the law, policy or even rights when you have a monopoly on violence. https://t.co/ksx9JpRwSg
— Jesse Powell (@jespow) February 17, 2022
Many of those who condemned the government’s actions as overreach admitted that they were not particularly sympathetic to the protestors’ core message, which is understandable given the general unpopularity of anti-vax views among Twitter intellectuals. The general sentiment of the crypto community, on the other hand, was largely in line with the maxim “I disagree with what you say, but I will defend your right to say it to the death.”
BlockFi: $100 million in exchange for a chance to comply
Thorough rulemaking is more expensive than regulation by enforcement, the two dominant approaches to financial regulation. Creating a comprehensive set of rules necessitates foresight and extensive research. The alternative is to draw broad boundaries of what is and isn’t permissible, and then let industry participants figure out more specific rules through trial and error. The crypto lending industry has just completed its most costly trial to date, with BlockFi, one of the industry’s leading names, agreeing to pay $100 million to settle charges brought by the Securities and Exchange Commission and 32 state attorneys general.
Previously operating in a regulatory grey area, the company paid a hefty sum to learn exactly what was wrong with its bestselling product, the high-yielding BlockFi Interest Account. Following the receipt of a few suggestions, it will have 60 days to bring the offering into compliance with the Investment Company Act. BlockFi has already announced plans to launch BlockFi Yield, its new SEC-compliant lending product. We’ll find out in the coming months whether the company’s eventual reward was worth the steep penalty.
Bills continue to arrive
Last week, federal and state lawmakers in the United States were hard at work drafting crypto-related legislation. Congressman Warren Davidson introduced the “Keep Your Coins” bill to the House. The bill, which comes just days after Canada invoked the Emergencies Act, proposes to prohibit U.S. federal agencies from restricting individuals’ crypto transactions and purchases of goods and services for their own use. The Stablecoin Innovation and Protection Act, proposed by Representative Josh Gottheimer, is a nuanced framework for regulating stablecoins. Qualified stablecoins, which are backed by the Federal Deposit Insurance Corporation in the same way that fiat deposits are, would be exempt from both securities and commodities regulation under the proposed legislation.
Meanwhile, a group of Wyoming legislators proposed allowing the state to create its own US dollar-pegged stablecoin. Simultaneously, the Georgia House of Representatives will debate a bill that would exempt crypto miners in the state from paying sales tax.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.