City govt shouldn’t be involved in crypto

This is a free sample of the Austin Politics Newsletter from May 16, 2022. To get DAILY insights on city politics, click here to subscribe to the newsletter.

Quartz takes a look at the spectacular crash of MiamiCoin, the cryptocurrency embraced by Miami Mayor Francis Suarez, who has relentlessly campaigned to make his city the world’s crypto capital.

…Over the last nine months, however, MiamiCoin has lost nearly all of its value, falling about 95% from its September peak to just $0.0032 as of May 13. Its rapid descent has burned investors on the way down, muting the dreams of Miami’s city leaders, and possibly raising red flags for regulators now investigating cryptocurrency transactions…

MiamiCoin is the product of CityCoins, a company that is trying to convince other cities, including Austin, to issue digital coins that, like most cryptocurrencies, have no value beyond speculation.

The way CityCoins works is that people essentially pay (with Bitcoin) to enter a raffle for the chance to “mine” MiamiCoin or AustinCoin or whatever. If you’re lucky enough to win some coin, then you can hold on to it or sell it on an obscure crypto exchange, OKCoin. Meanwhile, the participating city takes 30% of the mined coin, converts it into dollars and hopefully uses it for a good cause (Miami used it for rental assistance).

CityCoin markets itself as a no-lose proposition. After all, it’s not like the city is betting on the currency –– it’s just taking a cut of whatever others bet on it. It’s no different than a state lottery.

Well, there are already good reasons to be against government-sponsored lotteries, which tend to be a tax on the poor and mentally unwell, but at least nobody is led to believe that lottery tickets are a sound investment. That is not the case with cryptocurrency, which has been aggressively marketed as a way to get rich while declaring independence from the corrupt global financial system.

There is a small group of people who really buy into the intellectual case for crypto as an alternative to central banking, but in my experience most people but crypto because they mistakenly believe it’s a wise investment. And this delusion is fed by crypto evangelists online who talk about how much money they made by buying at the right time. You don’t hear as much from the many others who bought at the wrong time.

The government should not be promoting these delusions, even if it stands to make a few bucks off them. As much as I’m sympathetic to finding new revenue streams to fund our cash-strapped city, there are more ethical options. For instance, nonprofits that support public services, such as the Austin Parks Foundation.

Even worse than the CityCoins scheme is Suarez’s stated plans last year to let city employees get paid in BitCoin. The recklessness of such a proposal should have been apparent in November, when he floated it, but when the price is going up how can you argue with it?

Fortunately Suarez hasn’t been able to implement the policy and I imagine that the appetite for it will have diminished along with Bitcoin’s price, which has dropped by 50% since the beginning of the year.

Fortunately the city of Austin has yet to buy into anything this dumb, but Council in March passed a resolution asking city staff to look into ways for people to use crypocurrency to pay fines or pay for other city services. At best, this is likely a waste of staff resources. At worst, it contributes to the impression that converting your savings into bitcoin is a wise (or at least innocuous) decision, rather than an extremely risky one.

This is a free sample of the Austin Politics Newsletter from May 16, 2022. To get DAILY insights on city politics, click here to subscribe to the newsletter.

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