Powers On … is a new monthly opinion column from Marc Powers, who has spent much of his 40-year legal career handling complex securities-related cases in the United States after having worked for the SEC. Today he is an Associate Professor at Florida International University School of Law, where he teaches a course on Blockchain, Crypto and Regulatory Considerations.
Dear Readers, Here is my first comment on Cointelegraph since retiring from the law firm (and before that from the SEC) a month ago after a 40 year career. It’s an exciting opportunity for me and hopefully an interesting one for you. The shackles of politically correct, business-sensitive communication are now gone, and I no longer have to worry about the potential of my words insulting my law firm’s regulators, politicians, colleagues, or clients.
You will hear my personal and (mostly) objective views that are free from material conflict. I am not looking for a business from you for this endeavor. I just want to be read and perhaps stimulate dialogue in order to influence the actions of others – whether regulators, companies or legislators – in order to further develop and introduce blockchain technology, its use cases for companies and population groups with and without bank details, and the safe promote and responsible regulation of cryptocurrencies.
In my first column, I see the United States versus the rest of the world in terms of housing, adoption, and adoption of blockchain, bitcoin, and other cryptocurrencies.
I start on this important topic because I am concerned that through its actions and inaction, whether intentionally or otherwise, the United States and its institutions and regulators could undermine the development, use and availability of digital assets for the citizens of this country. And that could be to the detriment of all of us.
These actions generally include hostile Congressional hearings on blockchain and Facebook’s Diem, born Libra; as well as enforcement actions by the SEC that continue to target the 2017 and 2018 ICOs; and FinCEN regulations, in the week leading up to Christmas, proposed requiring regulated financial institutions and MSBs to disclose virtually all cryptocurrency transactions and information about the institution’s customers and counterparties that are non-hosted digital wallets.
The only bright spots were the thoughtful writings and speeches of SEC Commissioner Hester Peirce and the actions of the late acting currency auditor Brian Brooks to enable financial institutions to hold digital assets and use blockchains for financial transactions.
What most politicians and regulators in the US don’t appreciate is that while we are suppressing the advancement of blockchain and the use of cryptocurrencies for capital formation, there are other countries and jurisdictions that welcome and welcome this as well. If the US does not adapt, there is a real risk that this new technology “belongs” to other countries, some of which may be adversaries and competitors.
In China there is the People’s Bank of China’s Digital Currency and Electronic Payments project. Using Chinese central bank digital currencies and wallets, this pilot reportedly processed over three million transactions for a total of over $ 160 million last November.
In Switzerland, the country has not only promoted the introduction of blockchain, but the city of Zug has implemented blockchain for both government and private use.
In Sweden and Georgia, land registries are on the blockchain.
Raising capital is the lifeblood of many developers, entrepreneurs, and blockchain companies. It is important to the health and growth of blockchain projects and their communities. The mechanism of choice is often an offering of digital tokens. However, many US politicians and regulators take a short-sighted and provincial view, which includes the idea that anything that goes on in blockchain transactions must be inherited or guided by the views of US politics.
But guess what? As many regular readers of this publication or investors in Bitcoin and other cryptocurrencies know, daily financial transactions take place worldwide via the Internet and various blockchains without the government monitoring or approving it. Immune to and regardless of what Congress, SEC, CFTC, FinCEN, and the Federal Reserve say or want. These currencies represent living beings and companies that live a vibrant life beyond these coasts.
At the time of writing, CoinMarketCap lists thousands of cryptocurrencies on its platform. These tokens are traded on dozens of exchanges, many of which are not registered or regulated in the United States. And while US stock markets trade mainly from 9:30 a.m. to 4:00 p.m. EST Monday through Friday, tokens never stop trading. You don’t know the difference between weekdays and weekends. They are bought, hoarded, traded and shared between discerning and non-discerning investors and traders around the world.
The US has tried, and may continue to try, to stop this with new laws and regulations: however, this is an exercise in pointlessness. The cat is not only out of the pocket, it also feasts lavishly at the table.
In attempting to stifle innovation, the US will lose global dominance for the US dollar and the power and influence of its political and economic institutions. Acting Comptroller Brooks wrote aptly Farewell words and advice to the new Biden administration in The hill Last month: “[i]f The United States focuses on the risks, not the benefits [of cryptocurrency and decentralized finance]We will fall behind when the global financial system is rewired. “
Where are we with the new Biden administration and the new Congress? What can we expect and what should Americans do to ensure that the US continues to be the dominant actor in capital formation, trade and world affairs?
A quick look at Congress is hardly encouraging. On January 15, House Speaker Nancy Pelosi appointed Representatives Alexandria Ocasio-Cortez and Rashid Tlaib to the key House Financial Services Committee, chaired by Representative Maxine Waters. Waters has shown no apparent kindness or deep understanding of blockchain, digital currencies, and their useful uses. Ocasio-Cortez and Tlaib are likely to have other issues that they will prioritize. In the US Senate, neither Senators Mike Crapo nor Sherrod Brown from the Senate Banking Committee were outstanding for the further development of cryptocurrencies. Though at least Brown had introduced a central bank digital currency and digital wallet maintenance for Americans as part of the relief bill at the start of the pandemic.
The SEC is likely to be led by former Goldman Sachs partner and CFTC chairman Gary Gensler. It’s less obvious what’s going to happen. Gensler was a professor at MIT and taught blockchain, banking, and cryptocurrencies at the business school. In reviewing some of his lectures and class materials, there is no question that he has a thorough and helpful understanding of the issues and problems that arise from an evolving political and regulatory framework. On December 15, 2019, a year ago he wrote an opinion piece for CoinDesk with the title “Even if a thousand projects fail, blockchain is still a catalyst for change.”
Gensler’s letter closes with some encouraging thoughts:
“Even though literally thousands of projects haven’t landed on generally accepted use cases, I am still fascinated by Satoshi’s innovation potential to drive change either directly or indirectly as a catalyst. It pays to capitalize on the potential to lower verification and network costs, especially to lower economic rents and privacy costs and encourage economic inclusion. In addition, shared blockchain applications can help launch multi-party network solutions in areas that have historically been fragmented or can only change. “
Elsewhere in the piece, however, he ponders: “The question remains of what benefit cryptocurrencies and blockchain will have if they don’t just act as a catalyst for change. Aside from the fact that Bitcoin offers a scarce digital speculative store of value and niche applications for digital exchange, gaming and gambling, which applications will be sustainable for cryptocurrencies as the new form of private money? “
Gensler also had a reputation for being an aggressive regulator. While he has accomplished a lot at the CFTC to fulfill Dodd-Frank’s mandates, particularly in creating a swap exchange, he has ruffled a few feathers with other regulators and overseas. He also sued large financial institutions for enforcement actions. So it’s not clear where he’ll set the SEC’s priorities as chairman. One thing seems certain, however. As a blatant supporter of regulation and its enforcement, we can expect Gensler to seek comprehensive regulation of the blockchain ecosystem, as his fellow Commissioners, the courts and Congress allow.
In my view, overregulation is not a good thing for blockchain and its adoption and wide acceptance. Regulation by law enforcement is also not as it was coined many years ago in a book by former SEC Commissioner Roberta Karmel. Adequate and thoughtful regulation is required.
Yes, I accept and agree that investor protection is important. However, an essential element in the development of blockchain technology and philosophy is enabling all People – sophisticated and unsophisticated, banked or unbanked, rich or poor – can interact with one another, peer-to-peer, without government or other third party intervention.
I am not subscribing to the philosophical belief held by some regulators and staff in Congress that most retirees are simple idiots and will blow their savings on forex and issuer cryptocurrency fraud. We shouldn’t claim that to protect the few we have to overregulate and kill innovation in this emerging technology and industry to become the enemy of the many. Smart regulation and laws that stop crime, protect investors and businesses, and encourage the best use of blockchain technology seem right here.
In any case, education and disclosure are two of the most important hallmarks of the Federal Securities Act and the best way to stop fraud. Don’t prohibit the behavior entirely or make it difficult to continue.
It will be interesting to see how it goes next year. Are we marching towards a coherent and sensible legal framework for this industry? Or towards a suffocating environment that drives innovation and economic growth overseas?
I know where to put my hopes.