Crypto Is Not the Problem: A Response To "Tom Grady: Bank Failures And Crypto Ostriches"
Tom Grady is a former State Representative, Florida’s chief banking regulator and the founder of CrytpoLawyers.org. He is wrong in his most recent article.
Tom Grady just wrote an article in Florida Politics about the dangers of cryptocurrency, and more importantly, cryptocurrency exchanges. The article is not one meant for information, but for advertisement.
Well start with the ending of the article. Grady sums up his article with the following:
“My advice to crypto investors who have seen the value of their software plummet is to seek out legal counsel to explore their options and consider taking action to hold crypto ostriches accountable. With luck and skilled advocacy, hopefully, you can at least recover some of your lost savings.”
Coincidently, Grady’s firm is actually seeking to sue Coinbase, Robinhood et. al for selling unregistered securities. You can find the lawsuit here.
This is important to note first, as it gives you the entire intent of the articles. It is not about information, it is about marketing. Now we can dive deeper.
Looking Into the Argument
Grady’s argument can be summed up in the following points:
The banking collapse is due to crypto
Cryptocurrencies have no inherent value as they are just software
Cryptocurrency Exchanges lied to the public about being banks
The Banking Collapse is due to crypto
Everyone knows the banking collapses that happened during Q1 of 2023 had nothing to do with crypto and everything to do with operation chokepoint 2.0 as well as the Fed raising interest rates.
Silvergate had a huge decrease in deposits amidst FTX’s collapse. Pending investigation by the SEC for FTX involvement, more depositors got scared and left the bank. Most importantly, Silvergate was highly leveraged(like most banks) and could no longer afford it’s debt due to raising interest rates.
Silicone Valley bank was in a similar situation. Crypto did not cause the bank to fail, but it was a popular crypto bank. Rising interest rates meant the bank could no longer sell off its debt, so it had to fundraise to stay solvent. The letter in which they announced the fundraising caused another banking panic, which ended in it’s collapse. Once again, the problem was not crypto, but high interest rates.
Signature Bank actually never failed. However, it was abruptly taken over. Signature bank was one of the only banks to have a true onramp for traditional financial institutions and fintech companies. Barney Frank, one of the authors of the famour Dodd-Frank banking regulation, was actually on the board of Signature bank when it was taken over. It is his belief, that it was taken over to send a message, not to save the bank.
Cryptocurrencies have no inherent value as they are just software
To keep this argument short, Brady simply has a misunderstanding of the value add of cryptocurrencies like Bitcoin and Etherum. Grady thinks that crypto and digital assets are just turning currency and certain commodities digital. This is incorrect.
Bitcoin’s value add comes from its limited quantity, access, and decentralized nature. Most cryptocurrencies value come from there economics, not from their tech.
Bitcoin and its value can simply be explained by anyone willing to google it. However, Reddits “Explain Like I’m Five” board offers a simple and valuable explanation.
The following Youtube video also does a good job here.
Cryptocurrency Exchanges lied to the public about being banks
This may be the only point Grady has that is slightly correct. Celsius’ marketing slogan was that is was better than any bank or that is was the peoples bank. FTX had similar slogans marketing its yield on digital assets or USD as better than any bank. However, both of these bad actors were not at all indicative of the community and actually show how poorly the SEC regulates.
For example, FTX had extensive ties to regulators, including the SEC. Such articles written on the subject can be found here, here, and here.
Further, crypto companies continue to try to be compliant, but continue to get brushed aside by Gensler’s SEC. Coinbase’s response to the SEC wells notice is further proof of this. Gensler’s Congressional testimony before the House Financial Services Committee showed many of his biases to be true.
Conclusion
Grady’s anti-crypto article is just a sales piece for his law firm. I am not against people writing articles in order to generate sales, but I am against false platitudes about the crypto industry that are so incredibly inaccurate that is forces me to write an article in response to it.
Grady was a Republican member of Florida’s House of Representatives. It is odd that he would side himself with Elizabeth Warren, Gary Gensler, and President Biden, all of whom are saying the same things he espouses in his article, and not side with Republicans like Desantis, Tom Emmer, and Ted Cruz who are all in support of the industry.
Companies like FTX should be punished for the damage they’ve done to consumers and the industry as a whole. However, siding with Elizabeth Warren to condemn a innovative industry like web3 seems to be short sighted and dishonest.