The other week brought a curious outburst from part of the online cryptocurrency industry—those who spend expansive time promoting their holdings as the only choice in an uncertain world and challenging people who have any other view, even when, as with some I’ve seen, the doubtful hold extensive expertise in areas of finance.
Here’s how Reuters put it: “LBRY Inc, a blockchain publishing company accused by the U.S. Securities and Exchange Commission of selling unregistered securities, tweeted on Wednesday that it is ‘done being nice’ and that it would engage in ‘psychological warfare’ as it fights the lawsuit.”
That’s may be a bit too harsh of a recounting. The people at LBRY do seem convinced that the SEC has been unfair and unreasonably punitive.
And the “psychological warfare” was supposedly a joke about meeting the SEC sweaty and after eating garlic, although if you’re asking your lawyers if you could do it and they said no, was it as much of a joke?
In any case, trying to build a PR campaign to the cheers of those who follow you is a poor way to approach regulators. As journalist and CPA Francine McKenna put it, “Swagger is not a strategy.” As she notes, it hasn’t proven itself for multiple companies to date.
Many people in the crypto industry don’t seem to grasp how regulation works, other than seeing it as a blockade to what they want, run by people who are slow to embrace something new out of spite.
They certainly are slow about things because of the nature of regulations. The intent is to ensure predictable behavior that meets a standard in order to achieve a specific result. For the SEC, there are two primary goals. One is to ensure the “long-term interests of Main Street investors, otherwise known as retail or consumer investors. These are the people who don’t have massive assets, expertise help, and other resources to keep their retirement funds safe.
(And even the supposedly well-prepared can fall flat on their faces. Although not crypto, think of the investment disaster that was Theranos.)
The other main goal (there is a third that addresses enhancing the agency’s analytic abilities, but that can sit to the side for now) is to “[r]ecognize significant developments and trends in our evolving capital markets and adjust our efforts to ensure we are effectively allocating our resources.” The SEC must follow developments in technology to understand how regulation of markets has to change.
On the other side, there are two ways the enthusiasts tend to look at cryptocurrencies. One is as an alternative decentralized financial system. They assume that if things go wrong in a big way with governments and the world’s economy—a reasonable worry given the Great Recession in 2008—cryptocurrencies will allow people to continue buying and selling.
This view isn’t realistic because it doesn’t consider how interconnected and mutual all finance is. If the world’s ability to support business transactions on all levels catered, the vast interconnected majority that uses more traditional forms of finance would cause so much strife and disruption that decentralized finance wouldn’t stand a chance of working, given its reliance on communications systems that are part of the bigger global infrastructure.
Additionally, it’s not like decentralized finance was never tried before with results that should also cause concern. That was the way of much of the world for hundreds of years. Individuals, banks, and businesses would create their own currencies, causing so many problems that the current regulated reality was the solution. No, they didn’t have then the communications and technical advantages available now, but the same human issues of trust, of which currency would stay afloat or not, remain. Relying on cryptocurrency as a form of ordinary transaction means wild volatility that could cause periods where no one could know what the value of their holdings would be from one day, or moment, to the next. Again, in different forms, that’s already historical reality.
The other view crypto supporters often take is that this is a true form of value holding and a terrific investment. The first part has to confront the volatility. The latter is where the SEC steps in, and given some things that have happened in cryptocurrencies, the agency can’t assume there are companies that could never go awry.
People in one company or another are upset. Understandable, as they’re making bets on the future, putting in significant work, and then finding themselves tripped up by something that, frankly, should have been obvious in risk management planning. It wouldn’t be all that surprising if lawyers and financial experts have been trying to tell them.
Getting angry isn’t the answer, nor are the expectations of impatience. No big systems change quickly, due in part to vested interests of the people running them, sure, but more importantly, huge mechanisms can’t change overnight. It takes years and patience because the new version has to learn to cover all the bases the old one did.
This is the very stuff of Edmund Burke’s version of conservatism. Avid rush to change had best recognize the potential that an unsuccessful transition to new form of order might lose the old, never realize the new, and leave chaos in its wake.
Really changing the world in fundamental ways is a process. If you can’t recognize that a big shift requires intent and pushing, yes, but also the reality of a process, maybe you shouldn’t be leading the charge because you haven’t yet achieved the perspective of an adult.