Cryptocurrency, like bad medicine, needs regulation
On Jan. 23, the World Health Organization issued “an urgent call to action” regarding “substandard and falsified medical products.” In seven African and Asian countries, parents had purchased over-the-counter cough syrup for their sick children that turned out to be contaminated with diethylene glycol and ethylene glycol. The first is an industrial solvent, the second is antifreeze. Both are poison but have a sweet taste.
The WHO reported that the contaminated cough syrups are “associated with more than 300 fatalities…. Most are young children under the age of five.” Those deaths were from Gambia, Indonesia and Uzbekistan, although the syrups, reportedly manufactured in India and Indonesia, have been found in other countries, too.
The story has the nightmare quality of history repeating itself. As Elsevier’s website ScienceDirect explains: “The first major drug catastrophe in the 20th-century history of the public control of drugs occurred in 1937 in the USA and involved diethylene glycol.”
Sulfa was the first great antibiotic, a precursor to penicillin. In 1937, its sale in the United States was entirely unregulated. A Tennessee manufacturer, S.E. Massengill Co., decided it would be a good idea to sell it in a sweetened elixir.
“Massengill’s chief chemist concocted a solution of 10% sulfanilamide, 72% diethylene glycol, and 16% water,” according to The Scientist magazine, which adds: “The company’s internal control lab approved the solution’s appearance, taste promised.” The notes’ value dropped steadily the farther they traveled from their banks of origin.
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Because the value of banknotes fluctuated, accepting one as payment was a kind of investment, with no guarantee you’d ever get full value for it. If the issuing bank went bust, you’d get nothing. Sound familiar?
Rumors of embezzlement by a bank’s top management could spark a run. Once a run started, depositors needed to drop everything and fight to the front of the line, because there would be no money left for laggards. Just as happened with FTX.
Those of us who stay out of the crypto markets can regard such episodes as quaint history. The Federal Reserve has given us a national currency that retains its value from state to state. Federal deposit insurance consigned brick and mortar bank runs to old movies like “It’s a Wonderful Life.” We’re lucky to be living in an age of such stability.
But cryptocurrency has given us an alternative financial market that exists outside of a comprehensive regulatory framework. There’s much about crypto that is genuinely new — the Larry David endorsement, for example, and the stupendous waste of computing power. But dispensing with regulation is a reversion to the past.
An unregulated financial market is like an unregulated market for over-the-counter drugs. Both are reminders of why we have, and need, regulation.
Joel Jacobsen is an author who in 2015 retired from a 29-year legal career. If there are topics you would like to see covered in future columns, please write him at legal.column.tips@gmail.com.
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