The Washington Examiner is reporting that that Director of National Intelligence John Ratcliffe wrote a letter to U.S. Securities and Exchange Commission Chairman Jay Clayton this month about concerns that China has control over cryptocurrency because more than half of all mining—particularly of bitcoin and ether—takes place there.
The article said Ratcliffe’s letter represented “a push by President Trump’s spy chief to convince the SEC to implement rules that make it easier for U.S.-owned cryptocurrency companies to compete against those based in and controlled by China.”
It also speculated “it is possible” that President Trump’s executive order this month prohibiting any U.S. businesses or citizens doing business with any company linked to the People’s Liberation Army “could apply to Chinese-linked digital currency companies.”
The Examiner, owned by right-wing billionaire Philip Anshutz, said a “senior intelligence official” told it “[t]here are serious national security concerns about China’s control over Bitcoin and Ether… Digital currency controlled by the CCP could certainly fall into that category, but the bottom line is that we cannot allow China to dominate the technologies and innovations that are going to decide who runs the world for decades to come — from artificial intelligence to digital currency, and everything in between.”
It added that Ratcliffe’s letter attached a letter written this summer by Sen. Tom Cotton (R-Ark.) arguing that the SEC should “develop a clearer articulation of policy and, ultimately, formal Commission guidance addressing digital currencies” in order to give U.S. companies the opportunity to lead the cryptocurrency industry. The Examiner added that Cotton’s letter said “the continued lack of regulatory clarity not only hurts U.S.-developed digital assets, it puts American national and economic security gravely at risk.”
The Ratcliffe letter noted President Xi Jinping’s push to dominate blockchain technology and to launch a central bank digital currency, the digital yuan, before any other major country. The country sees the digital yuan as a way of undermining the U.S. dollar’s economically powerful place as the world’s reserve currency—a role British Bank of England Governor Mark Carney has also suggested as a benefit of CBDCs.
Regulatory clarity needed
Ratcliffe’s quote can be seen as the Trump Administration signaling to whoever President-elect Joe Biden picks to head the SEC that the issue of China’s potential control over cryptocurrencies—particularly bitcoin and ether— ought to be viewed as a threat to American financial technologies.
Noting that by some estimates as much as 65% of cryptocurrency mining takes place in China, executives of Ripple—including executive chairman of the board Chris Larsen, CEO Brad Garlinghouse, and general counsel Stu Alderoty, who the examiner quoted—have been particularly vocal on this issue.
On Oct 14, Garlinghouse told Fox News that the lack of U.S. regulatory clarity over cryptocurrencies is giving an “advantage [to] Chinese technology at the disadvantage to a company like Ripple and others like Ripple,” adding that it is “a really frustrating place to be.”
In August, Alderoty told Modern Consensus “there’s a real national economic and national security issue and this goes to the Chinese control of Bitcoin and Ethereum.”
He said “if you look at the Chinese control [of] Bitcoin and Ethereum, I think that’s part of their probably now decade-long attempt to displace the US dollar as the global currency… Add to that the billions of dollars in mining rewards going to Chinese miners… you end up in a world where China can effectively displace the US dollar. They can potentially evade U.S. sanctions and money laundering controls.”
Alderoty also criticized the SEC’s lack of regulatory action on whether cryptocurrencies other than BTC and ETH are not securities, saying the position companies like Ripple “find ourselves in the U.S., oddly enough, is that the SEC, the only two digital assets that the SEC has put their good housekeeping stamp of approval on by declaring them non-securities are the two Chinese-controlled assets, Bitcoin and Ethereum. So that’s a real problem.”
Having senior intelligence officials echo precisely those points can be seen as a way of signaling to the Biden Administration—which promised in its campaign to be more engaged but also tougher on China than the Trump Administration—that American cryptocurrency companies ought to be given, if not an advantage, then at least an level playing field by their own country’s regulators.
Ratcliffe’s letter can also be read as an embrace of American crypto companies which have been working with regulators on know-your-customer (KYC) and anti-money-laundering (AML) compliance as they seek to push the SEC towards a more positive view of the cryptocurrency industry that will give it a leg up rather than a hand tied behind its back.