Senate Democrats, led by figures like Durbin and Warren, are pushing for the DOJ to revive the National Cryptocurrency Enforcement Team (NCET). Their reasoning you ask? A laissez faire attitude towards crypto is leaving the keys to the criminal playground. Is more government always the answer? Aren’t we ignoring the lessons learned from every other industry in which heavy-handed government regulation has completely blown up in its face? I think they are.

Color me unconvinced, and you should be as well. Meanwhile, reviving the NCET is a bad solution that would do more harm than good.

Innovation Suffocated Before It Blooms

Consider what we might have learned from the early internet days. Consider this scenario Imagine it’s the mid-90s, and the federal government decides to create a huge, well-funded “Internet Crime Unit.” Their goal? Eliminate all instances of online fraud and crime! Would we have Amazon? Would we have Google? Or would we have stifled the emerging industry with an avalanche of red tape and government overreach?

Crypto is still in its relative infancy. It’s a total wild west, we’ll admit, but it’s a free market frontier of innovation. Blockchain technology has incredible promise, from improving our supply chains, ensuring the integrity of our voting to protecting intellectual property. A revived NCET, with its strong enforcement approach and built-in risk aversion, will surely make that innovation impossible. Startups will be scared to experiment. Investors will be hesitant to invest. We would all miss out on the next great crypto application. This might be the price we pay because of our haste to implement the regulatory hammer.

We need innovation. Take the UK, for instance, where the government is currently proposing a £4 billion reduction in the burden of regulation on businesses. They know the importance of creating a hospitable climate for business. We can't afford to fall behind.

Crime Just Goes Offshore, Untouchable

Here's a simple truth: Criminals don't care about borders. If the US tries to get hostile and stomp out crypto, they are just going to pack up and pick up shop in other jurisdictions with lighter regulation. We’ve witnessed this as it’s played out again and again with other industries. Tax havens, for instance, only have their power because businesses want to escape heavy tax burdens. Why would crypto be any different?

A revived NCET would likely be able to score a few high-profile wins, but it can’t put a damper on crypto crime. That’s just going to drive it further underground, creating an even bigger challenge to track and prosecute. Otherwise, we’ll just be stuck playing whack-a-mole, pursuing today’s criminals across international borders while tomorrow’s legitimate crypto businesses jump ship to friendlier shores.

This isn't hypothetical. The Treasury Department’s sanctions against Tornado Cash, a cryptocurrency mixer, suffered a significant blow. A recent court ruling found the sanctions to be an overreach, resulting in a partial rollback. This highlights the daunting challenge of trying to regulate such a decentralized and diffuse technology. The cat-and-mouse game will only become exponentially more complicated. This is particularly the case when the cats are in international waters, where US law enforcement lacks jurisdiction to intervene.

DoJ Already Has the Tools Needed

The Senate Democrats' argument rests on the assumption that the DOJ isn't doing enough to combat crypto crime. Is that really the case? In 2024, banks flagged authorities $1.4 billion dollars in suspicious transactions. This essential intel was key in the fight against rising crime and the spread of fentanyl. The DOJ already has a full toolbox to prosecute these crimes, from money laundering laws to wire fraud statutes. It’s not just that they have the power to investigate and prosecute crypto-related crimes, but rather that they’ve demonstrated their willingness to do so.

Consider the $40 million penalty recently imposed on Block Inc. for reportedly not reporting suspicious activity. That’s a big penalty to swallow, and it further signals a strong, clear message that the DOJ is cracking down on crypto enforcement.

The issue isn’t their enforcement power, it’s their knowledge. As we all know, crypto is a confusing and fast-changing new technology. Instead of throwing money at a new enforcement unit, we should be investing in education and training for existing law enforcement agencies. To ensure they do so, we must prepare them with the training and expertise necessary to efficiently and effectively investigate and prosecute crypto crimes.

This means:

The Reviving the Crypto Crime Unit is a simplistic, knee-jerk reaction. This approach will cripple innovation, drive crime offshore, and be ultimately unworkable in the long run. We shouldn’t make the same mistakes we made last time. Instead, let’s welcome a new era of crypto regulation—reflective of a more consumer-friendly, thoughtful, and balanced approach.

  • Promoting self-regulation: The crypto industry itself has a vested interest in weeding out bad actors. We should encourage the development of industry standards and best practices.
  • Fostering collaboration: Law enforcement and the crypto industry need to work together to share information and develop effective strategies for combating crime.
  • Focusing on education: We need to educate consumers about the risks and rewards of investing in crypto. We also need to educate law enforcement about the technology so they can effectively investigate crypto crimes.

Reviving the Crypto Crime Unit is a knee-jerk reaction that will ultimately stifle innovation, drive crime offshore, and prove ineffective in the long run. Let's not repeat the mistakes of the past. Let's embrace a more thoughtful and balanced approach to crypto regulation.