Sen. Elizabeth Warren shoots down a key reason investors buy bitcoin, calls for tighter regulation

Sen. Elizabeth Warren told CNBC on Wednesday she’s skeptical that bitcoin will prove to be a reliable hedge against inflation over the long run, a key reason some investors choose to own it.

“People can make their own investment decisions, but to do that somehow assumes two things. One is that what’s happening with bitcoin or any other cryptocurrency is somehow going to be divorced from what’s happening elsewhere in the economy,” the Massachusetts Democrat, a frequent Wall Street and crypto critic, said on “Squawk Box.”

The second assumption, according to Warren, is “crypto coins are not going to have their own inflationary pressures.” She countered such a notion, saying inflation “may come from a different source than what happens with dollars, but look at what’s happened in the high volatility in the price of these things.” She also added, “The idea that they’re somehow a protection or a hedge, I don’t think that’s going to be borne out over time.”

Many crypto bulls believe bitcoin represents a durable, long-term store of value, providing protection against what they see as too much government fiscal spending on top ultra-accommodative monetary policies by global central banks causing problematically high inflation. Their reasoning is that eventual supply of bitcoin is capped at 21 million tokens. Currently, the world’s largest cryptocurrency by market value has 18.77 million tokens in circulation.

New bitcoins come into the market when so-called miners use high-powered computers to verify transactions across the blockchain, a decentralized digital ledger. That reward is systematically reduced roughly every four years in a technical event known as the “halving.” The most recent occurred in May 2020.

Many critics, Warren among them, point to bitcoin’s penchant for wild price swings and believe it undercuts the premise of bitcoin as a store of value.

In recent months, inflation concerns have permeated across the U.S. and other parts of the world as economies pick up steam from pandemic-related slowdowns. Against that backdrop, however, bitcoin tumbled from its all time high near $65,000 in mid-April to below $30,000 this summer. As of Wednesday morning, bitcoin traded back near $40,000.

Mike Novogratz, founder and CEO of crypto financial services firm Galaxy Digital, told CNBC earlier Wednesday that he believes theories about bitcoin’s store-of-value potential cannot be shot down yet.

“Bitcoin is 13 years old, so we’re still very early in the adoption of these new technologies and these new assets. People are buying bitcoin because they have worries that our fiscal and monetary policy is out of control. So, yes, it’s a broader debasement-of-currency hedge. It’s a broader debasement-of-fiat-money hedge. That’s mostly an inflation hedge. It doesn’t mean it’s going to go tick for tick with every CPI number,” Novogratz said, referring to the consumer price index, a monthly inflation reading released by the U.S. Bureau of Labor Statistics.

In the wide-ranging CNBC interview, which also touched on her wealth-tax proposal, Warren called for cryptocurrencies to face tighter regulation, suggesting it will help root out “snake oil salesmen” and may shore up the confidence of investors in the nascent asset class.

She likened it to the formation of the Food and Drug Administration in the early 20th century and the agency’s crucial role in regulating medicines and treatments.

“Once we really had an FDA that stood up and that said, ‘You know what, we’re going to test the drugs before they go onto the market. We’re going to assure the public that they are safe.’ Then look what happened. We got a whole lot more investment and obviously a much bigger market that helped the entire world,” said Warren, a former Harvard Law School professor and key architect of the Consumer Financial Protection Bureau.

She pushed back on concerns that increased regulation would stifle innovation for still-emerging digital assets and blockchain technology.

“I want people to have freedom to invest. I just don’t want a system where the big guys, where the shadowy guys, where the guys you never quite see, can get out there and do pump-and-dump [schemes],” Warren said.

“I think the question is not just regulation. The question is how it’s aimed. Who takes advantage of their being no rules? It’s the big guys. Who wins when there’s no cop on the beat? It’s the big guys,” she added. “That’s the part that I care about and I care about it happening before a lot of people have been wiped out.”