Massachusetts Sen. Elizabeth Warren took a strong stand against cryptocurrency in a congressional hearing for the Senate Banking, Housing and Urban Affairs Committee’s Subcommittee on Economic Policy on Wednesday.
Warren who is known for her critiques of Wall Street and for the creation of the Consumer Financial Protection Bureau, said cryptocurrency has “signicant problems” for four reasons: fluctuating value, investment issues, illegal activity and cost to the environment.
“Cryptocurrency has created opportunities to scam investors, assist criminals and worsen the climate crisis,” Warren said. “The threats posted by crypto show that Congress and federal regulators can’t continue to hide out, hoping that crypto will go away. It won’t. It’s time to confront these issues head-on.”
During the hearing, Warren questioned Dr. Neha Narula, director of the Digital Currency Initiative at the Massachusetts Institute of Technology, and Lev Menand, lecturer at Columbia Law School.
One highlight from their conversation occurred when Warren asked Narula if the cryptocurrency system was stable and reliable to which Narula responded, “No it is not, unfortunately. We just witnessed the value of the entire cryptocurrency ecosystem dropping by about 40% over the course of the last two months.” That 40% was equivalent to $1 trillion, according to Warren.
Warren gave an example of this impact saying, “It means the grocery store could take $100 in bitcoin to pay for groceries, but by the end of the day, the bitcoin could be worth only $60, in which case the store loses out.”
Warren also talked about the stability of Dogecoin.
“In just the last two months, the value of Dogecoin increased by more than ten-fold and then declined by nearly 60%,” Warren. “Now that may work for speculators and fly-by-night investors, but not for regular people who are looking for a stable source of value to get paid in and to use for day-to-day spending.”
In the hearing, Warren acknowledged that the banking system has traditionally cut out Americans, specifically people of color, citing 33 million households that are underbanked or unbanked.
Warren turned to Menand to ask if cryptocurrencies offer a safer alternative to the traditional banking system for consumers, in the context of how the banking system is was failed people in the past.
“No, Senator, absolutely not, the crypto market is rife with consumer abuses. You know in the traditional financial space we have regulations and consumer protections in place. Both don’t apply in the crypto markets so there are companies that offer crypto custody services that have lost customers’ money,” Manand responded. “There’s a lot of players that manipulate prices which lead ordinary users stuck paying high fees. It’s not a safe place to keep your money or to invest.”
In the hearing, Warren also discussed criminal activity surrounding cryptocurrency.
“Online theft, drug trafficking, ransom attacks and other illegal activity have all been made easier with crypto. Experts estimate that last year more than $412 million was paid to criminals in ransom through cryptocurrencies,” Warren said.
Last, the senator talked about the environmental impacts of crypotocurrecy saying that a single bitcoin transaction — one purchase, or one sale, or one transfer — uses the same amount of electricity as the typical U.S. household uses in more than a month.
Menand said that the environmental costs of cryptocurrency do not outweigh the benefits specifically mentioning that, “They undermine the government’s ability to maintain robust economic growth over time.”
The point of Warren’s hearing was to say that central bank digital currency is preferable to cryptocurrency saying it, “has great promise.” The idea of CBDC is to serve as a public alternative to cryptocurrencies.
According to Menand, CBDC’s would be sovereign non-defaultable money, that is cheaper to use and would not be subject to bankrupt dynamics.
Warren agreed saying, “Legitimate digital public money could help drive out bogus digital private money. It could help improve financial inclusion, efficiency and the safety of our financial system — if that digital public money is well-designed and efficiently executed, which are two very big ‘if’s.’”
Meanwhile, as Warren tries to discourage cryptocurrency in the U.S., El Salvador recently adopted Bitcoin as a legal tender earlier this week.