Will Smith put it best when he sang, “wicky-wicky wild, wild west.” Crypto has existed in a regulatory wild wild west since the asset class’s inception, ICOs and DeFi protocols launching left right and center through grey legal channels and without explicit SEC consent. In 2017 alone, $11.9B worth of tokens were sold and according to ICO advisory firm Statis Group, 80% of those ICOs were fraudulent. While many of these issuances were done in bad faith, they arguably could have been avoided had the SEC taken an early stance on ICO regulation and provided the industry with bright line rules regarding offering requirements.
In place of real regs, the industry has been forced to follow FinCEN opinions, SEC “frameworks”, and precedent provided by SEC enforcement actions and crypto-related civil suits. To say it has been a legal cluster-f would be a rabid understatement. The Howey Test was never made for this.
Thankfully, this may all be coming to an end. According to a readout from U.S. Treasury Secretary Steve Mnuchin this morning, central bank officials and G7 finance minsters met by video conference to discuss, among other things, the need for official regulation of digital currencies. Crypto’s wild wild west could very well be coming to an end.
While some may despair at the thought of governmental meddling, the truth is that crypto will never be universally accepted as an asset class until exchanges and issuers are forced to provide investors with the information and disclosures they need to make informed, risk-mitigated decisions. Bright line rules will also benefit startups working in the space, ensuring that teams can build out their platforms without the fear of random SEC opinions forcing them to change their models or face an enforcement action (both of which are expensive options).
Although regulation may at times stem the flow of innovation, official frameworks pay dividends. Official frameworks create security, build trust, and reduce friction in an ecosystem – all concepts that any HODLr or cypherpunk can appreciate. For now, there’s no telling when the central bank and G7 may implement their “official regulation”, but I for one sure hope its soon.
JD, MBA, resident Petrol Head and Autoholic. Sebastian is dedicated to providing an uncompromising view into the auto industry and taking every chance he can to make sure rear wheel drive, manual transmission, ICE vehicles never disappear. He also has proximate knowledge of many things including blockchain, venture capital, and the importance of diversity in today’s startup ecosystem.