Powers On … is a new monthly opinion column from Marc Powers, who spent much of his 40-year legal career working complex cases involving assets in the United States after a stint at the SEC. He is now an adjunct professor at Florida International University School of Law, where he teaches a course on ‘Blockchain, Crypto, and Regulatory Considerations.’
Dear Readers, This is my first opinion piece for Cointelegraph since I retired from the practice of law (and before that, from the SEC) after a 40-year career. It is an exciting opportunity for me, and I hope it is an exciting one for you. The shackles of politically correct and business-sensitive communications are gone, and I no longer have to “foreclose” or worry that my words might offend my firm’s regulators, politicians, colleagues, or clients.
You will listen to my personal and (mostly) objective opinions, which will be free from material conflicts. I am not seeking any business with you for this endeavor. I just want you to read me, and perhaps stimulate dialogue to influence the actions of others – whether they are regulators, companies or legislators – to promote the advancement and adoption of blockchain technology, its use cases for companies and banked populations and unbanked, and safe and responsible regulation of cryptocurrencies.
My first column is on where I see the United States compared to the rest of the world in its accommodation, acceptance, and adoption of blockchain, Bitcoin, and other cryptocurrencies.
I begin with this important topic because I am concerned that the United States, and its institutions and regulators, may, by their actions and inactions, and whether by design or otherwise, be undermining the development, use and availability of digital assets for the citizens of this country. And this could be to the detriment of all of us.
These actions include generally hostile congressional hearings on blockchain and Facebook’s Diem, née Libra; as well as SEC enforcement actions that continue to target the 2017 and 2018 ICOs; and FinCEN regulations proposed the week before Christmas that seek to require regulated financial institutions and MSBs to disclose virtually all cryptocurrency transactions and information about the institution’s clients and counterparties that involve non-custodial digital wallets.
The only good points have been the thoughtful writings and speeches by SEC Commissioner Hester Peirce and the actions of recently outgoing acting Comptroller of the Currency Brian Brooks in allowing financial institutions to hold digital assets and use blockchains to financial transactions.
What most politicians and regulators in the United States do not appreciate is that, while we repress the advance of the Blockchain and the use of cryptocurrencies for capital formation, there are other countries and jurisdictions that welcome and embrace it. By not adapting, The United States faces the real risk that this new technology will be “owned” by other countries, some of which may be adversaries and competitors.
In China, there is the People’s Bank of China digital currency and electronic payments project. This pilot project, which uses digital currency and wallets issued by the Central Bank of China, has processed more than three million transactions for a total of more than 160 million dollars as of last November.
In Switzerland, the country has not only encouraged the adoption of the Blockchain, but the city of Zug has implemented the Blockchain for government and residential use.
In Sweden and Georgia, property records are on the Blockchain.
Raising capital is the lifeblood of many blockchain developers, entrepreneurs, and companies. It is essential for the health and expansion of blockchain projects and their communities. The chosen mechanism is usually a digital token offering. Nevertheless, Many American politicians and regulators have a myopic and parochial view in thinking that everything that happens in blockchain transactions should be adopted or guided by the political views of the United States.
But guess what? As many regular readers of this post, or investors in Bitcoin and other cryptocurrencies know, Every day there are financial transactions taking place all over the world via the internet and various blockchains, without any government supervision or approval. Immune to, and regardless of, what Congress, the SEC, the CFTC, FinCEN, and the US Fed say or want. These coins represent living entities and businesses that have vibrant lives beyond these shores.
At the time of writing this article, CoinMarketCap lists thousands of cryptocurrencies on its platform. These tokens are traded on dozens of exchanges, many of which are not registered or regulated by the United States. And while the United States stock markets mostly trade from 9:30 am to 4:00 pm EST Monday through Friday, the tokens are never untraded. They do not know the difference between the days of the week and the weekends. They are bought, hoarded, traded and shared between sophisticated and unsophisticated investors and traders around the world.
The United States has tried, and may continue to try, to stop this with new laws and regulations: But this is a futile exercise. Not only is the cat out of the bag, but it is feasting on the table.
In the process of trying to stifle innovation, the United States will lose the global dominance of the dollar and the power and influence of its political and economic institutions. Acting Comptroller Brooks aptly wrote parting words and advice to the new Biden Administration at The Hill last month “[s]i the United States focuses on risks rather than benefits [de las criptomonedas y las finanzas descentralizadas], we will be left behind when the global financial system reconfigures“.
Then, Where does this leave us, with the new Biden Administration and Congress? What can we expect and what should Americans do to ensure that the United States remains the dominant actor in capital formation, trade, and world affairs?
A quick glance at Congress is not encouraging. On January 15, House Speaker Nancy Pelosi appointed Representatives Alexandria Ocasio-Cortez and Rashid Tlaib to the important House Financial Services Committee, chaired by Representative Maxine Waters. Waters has not shown any obvious kindness towards, or a deep understanding of, blockchain, digital currencies, and their useful applications. Ocasio-Cortez and Tlaib will likely have other issues to prioritize. In the United States Senate, neither Senators Mike Crapo nor Sherrod Brown of the Senate Banking Committee have stood out for pushing cryptocurrencies. Although at least Brown had supported a Central Bank digital currency and the maintenance of digital wallets for Americans at the start of the pandemic as part of the aid bill.
The SEC will likely be under the direction of former Goldman Sachs partner and former CFTC chair Gary Gensler. It is less obvious what will happen. Gensler has been a professor at MIT and has taught a class on blockchain, banking, and cryptocurrencies in business school. As you review some of your lectures and class materials, there is no doubt that you have a comprehensive and useful knowledge of the subject and the issues that arise from an evolving policy and regulatory framework. He also wrote an opinion piece for CoinDesk a year ago, on December 15, 2019, titled “Even if a thousand projects don’t make it, Blockchain is still a catalyst for change.”
Gensler’s writing concludes with some encouraging thoughts:
“Although literally thousands of projects have yet to land in widely adopted use cases, I remain intrigued by the potential of Satoshi’s innovation to stimulate change, either directly or indirectly as a catalyst. The potential to reduce costs is worth pursuing. network, especially to reduce economic rents and data privacy costs, and promote economic inclusion. Additionally, shared blockchain applications could help launch multi-party network solutions in fields that have historically been fragmented or have been resistant to change. “
However, in another part of the article he reflects that “the question remains what uses will cryptocurrencies and blockchain have beyond acting as catalysts for change. Beyond Bitcoin providing a scant store of speculative digital value, and niche applications in digital exchanges, gambling and betting, what applications will be sustainable for cryptocurrencies as a new form of private money?“
Gensler also had a reputation as an aggressive regulator. While it accomplished much at the CFTC in fulfilling Dodd-Frank’s mandates, especially in creating a swap exchange, it ruffled some feathers with other regulators and abroad. It also sued large financial institutions in enforcement actions. So it’s unclear where he will set the SEC’s priorities as President. However, one thing seems certain. As an apparent believer in regulation and its enforcement, we can expect Gensler to seek broad regulation over most of the Blockchain ecosystem that his fellow commissioners, the courts, and Congress will allow.
From my point of view, over-regulation is not a good thing for blockchain and its adoption and wide acceptance. Neither is prosecution regulation, a phrase coined many years ago in a book title by former SEC Commissioner Roberta Karmel. Reasonable and thoughtful regulation is needed.
Yes, I accept and agree that investor protection is important. But an important element in the development of the technology and philosophy of Blockchain technology is to allow all people – sophisticated and unsophisticated, banked or not, rich or poor – to interact, as equals, without interference from the government or from others. third parties.
I do not adhere to the philosophical belief that some regulators and congressmen have that most retirees are mere idiots and will squander their savings on cryptocurrency scams by foreign exchanges and issuers. We must not pretend that to protect the few we must over-regulate and end innovation in this nascent technology and industry, thus becoming the enemy of the many. Smart regulation and laws that stop crime, protect investors and businesses, and promote the best uses of blockchain technology appear to be the right fit.
In either case, education and outreach are two of the important hallmarks of federal securities laws and the best way to stop fraud. It is not about prohibiting the conduct altogether, or making the procedure difficult.
It will be interesting to see how things go in the next year. Are we moving towards a coherent and sensible regulatory framework for this industry? Or into a stifling environment that fuels innovation and economic growth abroad?
I know where I have my hopes pinned.