New presidential administrations bring drastic policy changes, especially in a partisan era such as ours, and crypto currency may be an early victim of those changes. Janet Yellen, the newly confirmed Treasury Secretary and former head of the Federal Reserve, hinted during her confirmation hearing that addressing Bitcoin is on the Biden administration’s agenda. It makes sense that the government is not happy about crypto currencies, and it is well within the government’s power to deal Bitcoin and crypto currencies a devastating blow.

Anyone invested in Bitcoin or its competitors should understand the risks.

Why

Last week, Yellen mentioned that “one area of growing concern, for example, is the potential for terrorists and criminals to use crypto currency to finance their activities.” This may be all the reason the government needs to go after crypto currencies, but it is not the only reason. Crypto currencies can also be seen as a threat to the government’s ability to enforce taxes.  Most importantly, crypto currencies are an assault on one of the most ancient characteristics of sovereignty, and this is likely a significant—if not the primary—reason governments look to oppose it.

For millennia, a prime characteristic of sovereignty (the right to rule) has been the exclusive power to mint coins. Even in ancient times, the power to mint currency was considered the sovereign right of rulers. Alexander the Great, for example, placed his image on coins, which are still found throughout the vast empire he conquered. When Jews defeated the Assyrian Greeks about 2,200 years ago, they celebrated their renewed independence by gifting coins to children to mark this sovereign power, a tradition still followed today on the holiday of Hanukkah. Looking back in U.S. history, states printed their own currency during the period of the Articles of Confederation, but then the U.S. Constitution reserved that power for the federal government exclusively.

In other words, Bitcoin and other crypto currencies, regardless of what they are used for and whether they represent actual minted coins, challenge the sovereignty of the U.S. federal government.

How

It would actually be quite easy for the government to permanently damage the value of crypto currencies without involving the difficult legislative process.

The Treasury or Commerce Departments could introduce new regulations. This requires rule writing based on existing legislation, a comment period and adoption. For example, regulations under development at the Treasury Department might require crypto currency exchanges to verify the identity of their customers and potentially share information with the government. But the government need not even involve the regulatory process to damage the value of crypto currencies.

It would be easier to use the police power of the state. Notably, this police power—a monopoly on the legitimate use of violence—is another characteristic of sovereignty according to Max Weber’s theories on the conception of the modern state. Both the Department of Treasury (the parent agency of the IRS) and the Department of Justice can target crypto currency holders for either audits or investigations of criminal behavior, respectively.

The easiest way for the government to curb the use and investment in Bitcoin is via the IRS audit power. If the Treasury Department directs the IRS to audit crypto currency holders, the value of crypto currencies will fall. Similarly, a criminal investigation means a serious hassle and expense for the target, possible civil asset forfeiture meaning a loss of property without due process, and, of course, a potential loss of freedom.

But it may be even easier than that to damage crypto currencies. After the Senate confirmed Yellen on Monday, Bitcoin dropped 8 percent by Tuesday morning (before regaining some of its losses). The fear of government intervention could be enough to hurt crypto currencies significantly, and that could come from just a couple of harshly worded speeches by Yellen.

Will They?

Governments seek to maintain control, and outside currencies represent a loss of control for the U.S. government as well as all other national governments. One example of this attempt at control is from 1933, when, just one month after his inauguration, President Franklin Roosevelt, issued Executive Order 6102. This forbade Americans from owning more than a token amount of gold, an attempt to curtail the hording of wealth (other than from the U.S. mint) during the Great Depression.

Some have wondered if the U.S. government might institute its own crypto currency. This is unlikely precisely because crypto currencies cannot be controlled like U.S. minted currency can. Crypto currencies like Bitcoin have finite limits on the amount that can be “mined,” and the Federal Reserve might not be able to manipulate the value of crypto currencies as easily by adjusting rates. The government has no interest in relinquishing power to a decentralized currency.

To date, Bitcoin has done well because governments—including the U.S.—have not quashed it, but it exists at the whim of governments. Bitcoin may have blockchain, but the government has a monopoly on the police power of the state. In the real world, guns and badges are worth more.