The recent banning on staking was just the tip of the iceberg. We can expect those discriminatory attitudes toward crypto to come relentlessly in the near future. Sometimes it’s really weird to see how antagonistic the US government is toward this industry. Perhaps the most antagonistic on earth, only surpassed by China. But China already infamously has weird approaches toward a lot of things, and the US certainly doesn’t want to be put in the same box as China. The land of freedom, innovation, and exploration, the US claims to be everything that China is not.

So, why such an attitude? I wonder. To understand them I need to put myself in the mocassins’ of Uncle Sam.

Out of their reach

The Internet was a technology that was born out of US military research. Back then, the internet was more of connected computers, instead of one single node providing data to everyone. The decentralized design choice was not without reason. So the network is hard to be hacked, something that was important during the cold war era.

So, the US has experienced firsthand how indestructible a decentralized network is. It was nice and dandy when the US, already a control freak, was in control of this technology.

However, crypto is totally out of their reach.

Crypto is borderless. If you put your money in TradFi, it’s trackable. They know it’s in a bank account somewhere. A physical location exists. Meanwhile, crypto is a distributed network, everyone owns a copy of the information. Simultaneously, your asset is everywhere.

This is making crypto very hard to control. The only thing a government can do is make access illegal, or in a softer approach, prohibit protocols from servicing the users from that country. That’s exactly what the US government has been doing.

Capital flight

Countries basically don’t like it if wealth disappears from itself into foreign territory.

It’s okay if the government does it (Hello, foreign aid!). It’s okay if accredited investors do it (Hello, global hedge fund!) But the average citizen? Hell nah!

From the eyes of a government, or from a nation's economic perspective, every dime exchanged into crypto and stored in blockchain means money disappears out of thin air from the economy. Their overall economic value is technically subtracted. Blockchain is no man’s land. It’s not under any jurisdiction.

Imagine if they let this kind of exodus be big enough that it spells disaster for that nation’s capital market.

Capital itself is goods. If you see it as that, basic supply and demand law will apply. The harder it is to get capital, the more expensive is it for someone to get a loan.

Money running away to crypto-space won’t finance the real economy, and that’s a big loss in the eyes of the government.

When you put your money in the bank, banks are entitled to lend up to 90% of your money as they like— the fractional reserve. With $100 for example, if it gets loaned 90$, which is later saved and loaned 80% again, it would create an economy worth n(n-10%)! (Pardon the rough math.) For every $100 running away to crypto, the amount of loss a nation would suffer is only incremental.

Compared that with foreign aid. At least foreign aid benefits a certain group of that country (i.e. the government contractors.) (Foreign aid basically is a country taking money from the left pocket and putting it into the right pocket, despite how it looks like 'aid' on the surface. Or in other words, from taxpayers to government contractors.)

Or let’s see ‘legal’ foreign investment. At least the dollars going to China to buy goods (import) or funding their startups will eventually find their way back to the US through China buying American goods/ services with USD or China buying American debts — the T-Bill.

Investing out of a country’s scope itself is not banned in TradFi. Such as if a US citizen wants to buy a Japanese bond. But I’m gonna ask you, how many average people have access to investing overseas? It’s a playground for the rich and professionals only. So when crypto staking acts like a foreign investment but with more accessible and easy access for ordinary folk, you know the government would be afraid of that.

Kill it while it (staking) is still small.

Staking is like the FED, only not by the government

The act of setting aside your money in a non-custodial crypto wallet instead of a traditional bank account itself is already disrupting the global capital market.

But do you know what is worse? Ethereum staking.

Introduce me to the geniuses of Ethereum staking, the very mechanism of capital control the government seems to feel threatened of.

When it’s a roaring bull market and DeFi activities are hot, Ethereum staking yield increases. That helps cools down the market by encouraging capital ( ETH) to go from DeFi into Ethereum staking.

When the crypto economy slump, ETH staking yield will get lower to encourage people to un-stake — withdraw their ETH — and seek yield in DeFi, thus stimulating the DeFi economy.

(Gut article from Bankless if u want to read this topic deeper.)

What’s magic about this capital control is that it’s all done without a guy named Jerome Powell or Alan Greenspan.

The potential for crypto to run things by itself, replacing traditional banking and traditional economic policymaking means disruption for the status quo. Not to mention, the process of staking ditches middlemen altogether. Provided that the ETH is never leaving the crypto economy, there’s 0 service fee a traditional bank can charge. It’s not a good look at the future for them.

A desperate act for an almost bankrupt country

Did you hear about the 31 Trillion US Debt?

This year is going to be a headache for the Biden administration. The 31 Trillion US debt represents the mounting problems the US managed to amass over the last 240 years (with peak aggressive borrowing happening since the beginning of the 20th century.)

There’s a risk of default, and we might see the US go down the path countries as Greece have gone through several years ago. Meanwhile, a lot of people think that default is utterly impossible. But whether it will happen or not is not the important thing here. It’s how we get there as the deadline loom, what’s to be sacrificed and compromised.

The Republicans, who have taken the control of the House of Representative, is expected to hold off the vote to increase the debt ceiling. They’ll negotiate the heck of it and hold debt ceiling custody until they get what they want. Their aim is something like the Democrats cutting spending (therefore making a lot of their programs and agenda never materialize and disappoint their voters, all of which will smooth the Republican's path toward the 2024 election.)

Welcome to the clown world that is the US politic.

(It’s so funny that politicians really don’t care if the country default or not, what they care about is, should a default happen, they’ll work hard to make it not happen during their administration so they can blame the opponent.)

The debt ceiling most likely will be increased. However, Biden will have to agree with certain forms of budget cuts and tax cuts for corporate — a favorite of Republicans — all while taxing the other group more aggressively (just not the rich.)

You have read about the plan to increase the number of IRS staff, or the IRS demanding Kraken submit US customers’ tax information. It looks to me all just a desperate attempt of control, to raise funding from all sorts of sources as possible and be utterly paranoid of evasion. It’s like scrapping money from under the couch.

A secure country doesn’t tax its common citizen relentlessly and frantically like this.

If you read the history of America's founding, you’ll get easily fascinated by how noble the revolution cause was. George Washington is an exceptional man surrounded by his intelligent and enlightened countrymen. A group of people wanted to preserve their freedom. The right of their being (individual liberty), the right of managing their economy, and the right to private property. Away from the meddling of the tyrannical British empire.

Such a shame and embarrassment the US has become what it is now.

The US economy is largest than ever, as reflected in its GDP. But what of the real wealth of their citizen? In the past decades, wages haven’t grown while the stock market keeps reaching another all-time high. 51% of people earning $100,000 per year admit to living paycheck to paycheck.

Where does all the wealth go? How is it not trickled down? There must be a huge misallocation of capital somewhere, there must be some kind of wealth hoarding. Anywhere but the pocket of regular citizens.

As Thomas Piketty wrote in Capital in the Twenty-First Century, when capital growth outpaces wage growth, that means there’s a significant inequality. And history has shown us repeatedly how inequality always leads to the end of that civilization/society/regime.

For US people, crypto can offer an alternative to not participating — at least not fully — in this giant Ponzi scheme that is the US debt-backed economy. Your own digital ‘13 colonies’ away from the British empire, crypto offers people to start fresh. The great American experiment is now the great crypto experiment.

But just like King George III hated the continental colonies at that time, the US empire also hates these new crypto ‘colonies’ so much.

I am not one of those who say that Protection is founded on men’s interests. I am of opinion rather that it is founded on errors, or, if you will, upon incomplete truths. Too many people fear liberty, to permit us to conclude that their apprehensions are not sincerely felt.

— Fallacies of Protection, Frederic Bastiat