We will never truly know how great Charlie Munger is. After all, he has spent his exceedingly long and successful life in the shadow of Warren Buffett. He may be like Scottie Pippen to Buffett’s Michael Jordan, but we’ll never know for sure as he cannot be confirmed to exist independently of Buffett.

Like Buffett, Munger is known for his disdain for cryptocurrencies, among many other things. He once again made his stance clear in a recent op-ed for The Wall Street Journal.  “Why America Should Ban Crypto” reads the headline. Very well, I believe the idea is preposterous, but since we live in a democracy and enjoy the protection of free speech, let’s examine the arguments he presents, which are:

Crypto is gambling

“A cryptocurrency is not a currency, not a commodity, and not a security. Instead, it’s a gambling contract with a nearly 100% edge for the house, entered into in a country where gambling contracts are traditionally regulated only by states that compete in laxity”

The irony of someone who made a fortune (many times over) in the insurance industry calling crypto “a gambling contract with a nearly 100% edge for the house” is not lost, since this sounds exactly like how insurance underwriting works.

The argument that “crypto is gambling” is not original or insightful, it’s the same lopsided and hypocritical argument that is rehashed time and time again, under slightly different forms:

While there may be some truth to these claims, they ignore crucial aspects of how cryptocurrencies work. Crypto is not truly ‘unbacked’ as its value comes from the security and efficiency of its network. It is not a Ponzi scheme as it supports an economic system that generates such value. And it is not purely gambling, as it serves various other purposes besides speculation.

It can become those things, but usually as a product of circumstances that go against the ethos of crypto: lack of decentralization, lack of transparency, and traditional financial fraud.

Valid precedents for banning crypto

— In the first precedent, the communist government of China recently banned cryptocurrencies because it wisely concluded that they would provide more harm than benefit.

— And, in the second precedent, from the early 1700s, England reacted to a horrible depression that followed the blow up of a promotional plan to get vast profits by using slow-moving sailing ships to trade with very poor people halfway around the world.

I wouldn’t hang my hat on policies backed by communist China and Georgian England, as both were/are authoritarian regimes engaged in empire-building through monopolies and slave labor, with very little regard for the public good. What an example to the world!

I agree that the Chinese Communist Party reached the conclusion that crypto would cause “more harm than good” with “splendid common sense,” but for whom? Certainly not for the Chinese people, but for the Party. This raises the question: whose best interest does Charlie Munger have in mind when advocating for a ban? Perhaps the second part of his argument will provide further insight:

“[…] the English Parliament […] banned all public trading in new common stocks and kept this ban in place for about 100 years. And, in that 100 years, England made by far the biggest national contribution to the march of civilization as it led strongly in both the Enlightenment and the Industrial Revolution […]”

Munger is referencing the ‘Bubble Act’ of 1720, also known as the “Royal Exchange and London Assurance Corporation Act.” It was enacted to prevent the speculative bubble that was disrupting trading activities in the South Seas. Which trading activities? A monopoly (the Asiento de Negros) to supply African slaves to South America.

So, the ban on trading new common stock was literally enacted to protect the profits from slavery. This is the argument Munger is using to support his point. I’m surprised that he stopped short of calling on Putin or the Iranian ayatollahs, for further advice on responsible policy-making.

A Crypto Ban is NOT Completely Ruled Out

Although the case for banning cryptocurrencies is still in its early stages, people like Munger continue to exert their political influence to push for a ban, especially as the FTX case progresses in Congress and “crypto banks” like Silvergate and Signature keep struggling.

Just this week, the Fed prohibited state-chartered member banks from holding cryptocurrencies in principal accounts. These developments cannot be ignored, and it cannot be assumed that a larger ban is not a possibility.

To be fair, I can understand that reasonable individuals may have valid concerns that lead them to support a ban on cryptocurrencies. Although I may not agree with it, I acknowledge that it is less objectionable than advocating for a ban based on faulty reasoning or deceptive arguments.