Why America Should Ban Crypto

Date: February 2, 2023 Publication: Wall Street Journal Source: WSJ Link

Overview

Charlie Munger published this op-ed in the Wall Street Journal arguing that the United States should ban cryptocurrencies. At 99 years old, Munger drew on historical parallels — the South Sea Bubble, England's 100-year stock trading ban — to argue that crypto is not a currency or security but a gambling contract with a near-100% house edge.

The Core Argument

Definition

"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 Problem

Crypto operates in a regulatory vacuum:

No government pre-approval of disclosures
Promoters buy big blocks "for almost nothing" then sell to the public at higher prices
Pre-dilution in favor of promoters is not disclosed

Munger's Analogy

"This wild and wooly capitalism is much like that described in a remark often attributed to Mark Twain, who was thought to have said that 'a mine is a hole in the ground with a liar on top.'"

Historical Precedents

China's Ban

Munger praised China's 2023 crypto ban:

"The communist government of China recently banned cryptocurrencies because it wisely concluded that they would provide more harm than benefit."

He views China as having shown "splendid example of uncommon sense."

England's South Sea Bubble Response

Munger's most striking historical reference — the 1720 South Sea Bubble:

"England reacted to a horrible depression that followed the blow up of a promotional plan... Parliament... banned all public trading in new common stocks and kept this ban in place for about 100 years."

The result: In that 100 years, England led the Enlightenment and Industrial Revolution and "spawned off a promising little country called the United States."

The Implication

Banning speculative instruments can lead to better long-term outcomes by channeling capital toward productive uses.

The Recommended Action

Munger's prescription:

Federal ban on cryptocurrencies — Close the regulatory gap
Thank China — Acknowledge the sensible precedent

"What should the U.S. do after a ban of cryptocurrencies is in place? Well, one more action might make sense: Thank the Chinese communist leader for his splendid example of uncommon sense."

Related Concepts

This essay connects to Munger's broader investment philosophy:

asymmetric-risk — Crypto offers asymmetric returns for promoters, not investors
behavioral-bias — FOMO and gambling psychology drive crypto adoption
long-term-thinking — Short-term speculation vs. long-term wealth creation
margin-of-safety — No margin of safety in a 100% house-edge game

Famous Quotes

"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."

"The U.S. should now enact a new federal law that prevents this from happening."