It's all about replacing SEC, CFTC, and banking regulator oversight with a "self regulatory organization."
A dedicated self-regulatory organization (SRO) should be established to strengthen the oversight regime and provide more granular oversight of MDAs.
All registered MDAs should be required to be members of the SRO.
The SRO should establish the self-certification process that an MDA would use to make a digital asset available for trading on its platform.
The framework would preempt state-by-state registration and related regulatory requirements.
It's the scammer's dream. In a world where 79% of ICOs turned out to be scams[1], self-regulation cannot work. The percentage of crooks is too high.
The SEC's Howey Test[2] for "is it an investment" applies to "digital assets", just like it does to non-digital assets. The crypto community hates this, because it interferes with Make Money Fast schemes.
Your 79% figure is misleading because counting number of scams unweighted by size is meaningless. To quote your source:
> In relatively direct contrast, looking at our classifications as a percentage of the US dollars raised to-date (~$12B)
we found that only ~$1.3B (~11%) of ICO funding went to Identified Scams,
> Although ~1/10th of all ICO fundraising went to Identified Scams, the vast majority of the $1.3B was from just
three projects, which were all relatively old school frauds by no means unique to ICOs (Pincoin ($660M),
Arisebank ($600M), and Savedroid (~$50M)).
> Outside these three projects, Identified
Scams got away with just $30M in fundraising (or ~0.3% of all time ICO fundraising). We hypothesize this is
because the community is relatively adept at discovering scams and adding them to lists.
11% is still large enough to make your point, and people inclined to agree with you would probably also be inclined to take the 11% figure and not the 0.3% figure, so there was no need to talk about 79%.
At the moment the shiny new thing appears, the 79% figure applies. As time goes on, reality ensues, and it becomes clear which ones are scams. But you don't know that up front. For an investment class marketed by Fear of Missing Out, you have to look at the early odds.
The 11% is the early odds. The investments were made up front when everyone was driven by FOMO, and 11% went to scams. After reality ensues is now, and if everyone were choosing to invest now, the number would be 0%[1], not 11%.
[1] With the caveat that it's possible there are some long cons that haven't yet been exposed yet.
I would like to be able to invest in whatever I want. As an American, I cannot, because US exchanges can't list all the cryptocurrencies that Asian exchanges can, due to fears that the coins / tokens could be flagged as securities.
Right. Many of these things are zero-sum or worse. They need fresh suckers to keep them going.
Most of the crypto scams are not novel. The almost two century-old "Extraordinary popular delusions and the madness of crowds" (1841) has the classics from the first time around, when newspapers first got going. (Newspapers made possible scams at scale. There has to be some way to reach large numbers of suckers.)
There are two main scam formats. One is "We're going to take your money and do this profitable thing and you're all going to get rich". That's a classic blue-sky investment scam. Some of those succeed. Most fail. In the crypto world, the "doing the profitable thing" part is often skipped or deferred. (Right now, the "we're going to build a metaverse Real Soon Now so buy our NFT now" thing is big.)
Then there's the "Loan us your money and get a regular high payback, but we're vague about where the money goes". That's a Ponzi scheme. Those always fail. (That's Axie Infinity and their Smooth Love Potion token. And, of course, Madoff.)
If you miss that some of the laws are literally so the elite can stay in power, and the common folks have restrictions on what they can invest in, then I just can't take the rest of what you say about this subject seriously.
FWIW, I also invest in an S&P 500 index, so I'm not totally anti traditional finance.
Right, we generally assume that if you hold a certain amount of money you can opt-out from protections both because the risk of you losing money is lower (you presumably are a bit more savvy) and the cost of damages is relatively lower.
That isn't some great scheme to keep the common man down. It's to protect the average consumers from the kinds of crypto scams that are advertised daily, even on little cardboard signs around my own neighborhood.
That's just a conspiracy theory. I mean, yes, Protection of Entrenched Interests is a real thing, Regulatory Capture is a real thing. There are real issues to discuss there.
But to argue that the purpose behind the SEC et. al. is to ensure "the elite can stay in power" or that "common folks are restricted" is just ridiculous tinfoil hattery, sorry.
Outrageous scams in crypto are a real and significant threat. Everyone can see that. That they aren't traditional finance is quite clearly because of the regulatory regimes that control them.
> That's just a conspiracy theory. I mean, yes, Protection of Entrenched Interests is a real thing, Regulatory Capture is a real thing. There are real issues to discuss there.
> But to argue that the purpose behind the SEC et. al. is to ensure "the elite can stay in power" or that "common folks are restricted" is just ridiculous tinfoil hattery, sorry.
Thanks for this. Your argument is really simple (in a positive, elegant way) that it functions as a framework to rebuke most conspiracy theories people spew out nowadays. I've just never been able to present it so cleanly.
Some investments would turn out to be scams and the cheated would decry the lack of oversight, so rigorous oversight is what they got —- since you’re not rich enough to handle risk, we’re going to prevent you from taking any at all. So yeah, the rich get rich and remain unchallanged, while the common folk is protected from scams. Perhaps not a conspiracy per se, but the good ol bureaucratic status quo.
Correct. I’m not American and not subject to them, but I believe people should make their own decisions, while the protection offered by the state should come in the form of education and catching bad actors. Restricting access is a form of throwing one’s hands in the air and deciding the issue is too complicated so we’ll just hide it under the rug. This goes beyond accredited investor status. All too often laws and regulations hide issues under the rug rather than actually addressing them, perhaps because the systemic changes required to fit a framework around the world are too difficult to achieve vs fitting the world inside the framework. We’re trapped in legacy code.
> I believe people should make their own decisions, while the protection offered by the state should come in the form of education and catching bad actors.
I agree with this. I think education and prosecuting scam projects are both good.
Although I suppose one could also argue that to catch bad actors ahead of time, there needs to be a way for new cryptos to file with the SEC, to then be audited to see if they are legit. However, I just don't see the SEC being capable of that, at least not yet. Crypto technology is moving too fast for them to keep up. We also still don't have clarity on some basic questions like if Bitcoin or Ethereum are securities or not. Former members of the SEC have alluded that they are not [1], but there are no clear statements on this yet from the SEC. Maybe there need to be more legal precedents set, like from the Ripple case currently going on [2], in order more clarity to be provided and for the path forward to become more clear.
It's hard to fathom why people wouldn't know why regulations exist.
Without regulatory bodies, markets would not exist.
This is because regular consumers don't have the energy or ability to evaluate the quality of products or services, so in certain areas (health, safety, finance), where it 'really matters' - we regulate.
Without a drug regulatory body, there would be no way to know what drugs work, and the market would be almost entirely scammers.
Have a look at 'moisterizers' - it's a ridiculous game of false and misleading information by so called 'reputable' companies using technology totally out of context i.e. 'collagen' in order to be able to put it on the label. There's nary a way to understand what is effective and what is not. It's a completely distorted market. Now, it's just moisturizer, so it doesn't matter.
But we don't want the same thing for diabetes drugs, now do we?
The financial system is highly, highly regulated because it used to be full of outright scams and the system couldn't grow without it.
Integrity is key to all long term growth, it's why we have rules.
Now it should be possible to invest in highly speculative, risky things - sure - that should be up to you - but the reason we don't want to allow that in some instances is because the mechanism itself is fraudulent and misrepresentation i.e. a Ponzi Scheme is a Ponzi Scheme and it's bad to have them going around, even if you want to invest in them.
The entire field of Crypto thus far has been a giant distraction and waste of time, while there is definitely the possibility of some good coming out of this, it hasn't happened yet, we should be in the experimental stage, not the 'using up more electricity than Argentina stage'.
I can't disagree more. Crypto is a new market that should have a different set of rules, based on new technology, and what is happening now, not in 1933.
> Now it should be possible to invest in highly speculative, risky things - sure - that should be up to you
(i.e. invest in things that are securities, but without having to follow the securities regulations).
Sorry, but no.
This is not a matter of just 'risk' to you - you are allowed to take on as much risk as you want - you may need to be an accredited investor, sure, but you can still take on risk and invest in whatever you want.
As long as it's not a scam.
'We' (i.e. everyone else) does not want 'you' putting money in giant scam vehicles, they're toxic to a functioning market.
If you want to sell/buy/participate in a market for something that is like a security, then it has to follow securities regulations.
If you want to sell a drug that says that 'it cures cancer' - it has to be approved.
If you want to sell a car, it has to pass safety checks.
If you don't want to do those things, then you can go a place like Afghanistan to see how it works out. FYI even the Taliban (!) are trying to fight against fraud because they know it's bad.
There is no advantage to to society to skip these regulations. The only advantage to cheating on the regulations, is for early movers, to leverage themselves over dupes in an otherwise zero-sum game.
There are opportunities for things that transcend regulation but we don't have any examples of that quite yet.
For example, 'some future crypto' (not BTC or ETH) might provide the possibility for less oversight etc..
> you may need to be an accredited investor, sure, but you can still take on risk and invest in whatever you want
How is this not a contradictory statement? Are you claiming that anybody can become an accredited investor? That's incorrect, you need to be pretty damn close to the 1% to qualify.
> This is not a matter of just 'risk' to you - you are allowed to take on as much risk as you want - you may need to be an accredited investor, sure, but you can still take on risk and invest in whatever you want.
This is not true. As an accredited investor in the US, I cannot invest in any crypto that I want to due to domestic restrictions.
FWIW, I'm not against regulation, I just find it funny that we think laws from 1933 are applicable to any technology released in the future. That seems completely absurd to me. I think crypto should have its own set of regulations. I'm not against the SEC going after specific scams, I think they should do that, but I think people should have choice of what they invest in.
...which is exactly what opens the door to people being defrauded.
Can you explain how this is different to requiring approval for new drugs or medical devices?
Fwiw, if you are arguing for a review of how existing laws should apply to crypto, I'm fully on board. But that's not what Coinbase is trying to do at all. They are trying everything in their might to circumvent all of it.
> Fwiw, if you are arguing for a review of how existing laws should apply to crypto, I'm fully on board.
Yes, I think we are on the same page. I don't think crypto should be, or it is even possible to be, the wild west, indefinitely. Something should be in place, but we should have some clarity, and it would be great if the organization coming up with the laws understands the technology at a technical level. Gary Gensler seems promising, but time will tell.
Come up with an actual proposal that isn't "deregulate it all because 1930s laws don't apply" and people might listen to you.
Until then, bona fide intentions to "evolve" regulation are virtually impossible to tell apart from fraudulent intentions and most of us can't be bothered to spend the time or effort to engage in such a fruitless exercise.
FWIW, I'm not saying Coinbase is right here, and I'm not saying deregulate it all. I do think regulatory clarity in crypto would be good, and possibly we should revise some laws that were made almost a century ago.
I do not have an actual proposal but I am not a law maker.
A dedicated self-regulatory organization (SRO) should be established to strengthen the oversight regime and provide more granular oversight of MDAs.
All registered MDAs should be required to be members of the SRO. The SRO should establish the self-certification process that an MDA would use to make a digital asset available for trading on its platform.
The framework would preempt state-by-state registration and related regulatory requirements.
It's the scammer's dream. In a world where 79% of ICOs turned out to be scams[1], self-regulation cannot work. The percentage of crooks is too high.
The SEC's Howey Test[2] for "is it an investment" applies to "digital assets", just like it does to non-digital assets. The crypto community hates this, because it interferes with Make Money Fast schemes.
[1] https://research.bloomberg.com/pub/res/d28giW28tf6G7T_Wr77aU...
[2] https://www.sec.gov/corpfin/framework-investment-contract-an...