Crypto Regulations for the U.K in a matter of weeks

This is such a true prediction unfortunately…

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#Regulation Con-Arguments Below is an argument written by MrMoustacheMan which won 1st place in the Regulation Con-Arguments topic for a prior Cointest round.

#Regulation - Con Arguments (1/2)

First they ignore you, then they laugh at you, then they fight you, then you win.

• In outlining some cons against regulation below, I admittedly have a US focus.

• I also quote from Andreas Antonopoulos' 2014 testimony before the Canadian Senate Committee on Banking, Trade, and Commerce because (unfortunately) it's still relevant. I encourage you to read it or watch it in full.

• TLDR: the history of regulating other disruptive technologies like the Internet provides some key takeaways:

  • "Technology, business models, and consumer behaviors change." As they change, the meaning and effect of existing regulations also change.

  • "Do new technologies and business models differ from existing ones?" If so, regulation should reflect these differences - but they often don't.

  • "Money flows where regulation (or the absence thereof) encourages it to flow." A fragmented regulatory landscape hurts consumers and detracts from innovation.

##Special interests

• This year we've seen heightened regulatory action around crypto, especially in the US.

  • I think we should be concerned about the direction things are taking: namely, regulation that stifles innovation and individual rights, regulation that handicaps a nascent sector to protect established interests rather than consumers.

• The significance and power of lobbying on US governmental decision making is a lot to digest.

• But the system functions today to benefit legacy players and the cards are stacked against newcomers, especially those who aim to disrupt the status quo:

  "Economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence."

• There is a long history of established industries influencing regulators to limit competition from disruptive innovation:

  • The history of 'Red flag laws', which attempted to restrict the growing popularity of automobiles has a lot of parallels with how crypto has been treated. These regulations were often influenced by lobbying from the railway and horse-drawn carriage industries.

• How do industry leaders influence regulators? Well, they're often one in the same:

  • The revolving door between business and government means that regulators often had jobs in the industry they now oversee.

  • This career pathing clearly has consequences: conflict of interest, unfair distribution of influence and competitive advantages.

• The result is regulatory capture: It's common for regulators to get 'captured' by the industry they regulate, i.e. they lose sight of doing their job neutrally and act in the interests of the industry.

• Most relevant to the regulation of crypto is how the revolving door and regulatory capture shape the rules of global finance to benefit incumbents:

  • One study on this reports that central bank governors and finance ministers are more likely to deregulate the industry if they previously worked in the finance sector.

  • Or just look at the direct pipeline from Goldman Sachs into government: top roles in international central banks, the US Treasury Dept, the Federal Reserve, and now the SEC continue to get staffed by GS alums.

    "This is a complete, classic back-scratching deal, where Goldman Sachs executives help finance presidential and other campaigns, and are then rewarded with government jobs."

##Square peg, round hole?

• It's not surprising that regulators with deep ties to a legacy system try to apply old rules to a new technology.

• The same has happened with regulating other disruptive systems, like the Internet:

  • While regulations are marketed as innovative solutions to modern issues, things like net neutrality "are actually vestiges of long-outmoded ways of thinking about telecommunications policy."

• I'd argue that applying a 75-year-old regulatory framework like the Howey Test to a new crypto asset class follows the same pattern.

  • It gets messy when a cryptocurrency can be many things - sometimes multiple things at once (a store of value like gold, a security or bond, a currency, a networking protocol, etc.)

  • And even messier when there's no instruction manual on how to fit a 'decentralized peg' into a 'centralized hole' - a point brought up by Andreas in his 2014 testimony:

    "I believe that the best way to help Bitcoin is to ensure that there is clarity in the treatment of Bitcoin. And that Bitcoin is not essentially forced into contorting itself into regulatory structures that are designed by banks for banks or with traditional models of finance in mind, which are primarily centralized."

  • Unfortunately guidance is still lacking 7 years later. The Howey test looks easy to comply with but, according to SEC Commissioner Hester Peirce:

  " non-lawyers and lawyers not steeped in securities law and its attendant lore will not know what to make of the guidance. Pages worth of factors, many of which seemingly apply to all decentralized networks, might contribute to the feeling that navigating the securities laws in this area is perilous business."

• We recently saw the exact 'contorting' Andreas predicted play out in the US, as over-broad crypto regulation was added on to an infrastructure bill:

  • The bill's language lumped together custodial actors like exchanges with non-custodial actors, like miners and validators - basically forcing decentralized systems to follow centralized rules:

    • It would be impossible for decentralized protocols, software developers, miners or validators to collect 1099 forms from everyone interacting with their services. As Compound general counsel Jake Chervinsky said, "It defies logic to adopt a regulation for which compliance is literally impossible, unless the goal is to kill the industry."

• Really vague guidance on virtual assets from the Financial Action Task Force seems a further attempt to kneecap permissionless, decentralized systems on the international stage.

  • dYdX general counsel [Marc Boiron broke it down on Twitter, with the conclusion that...

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This is brilliant. How would they hold Bitcoin?.. The proper way

That depends on the actual form of the regulation. Enemas are good, though I doubt that a wasp enema would be desirable

This is exactly what we don't want. Say good by to decentralisation and hello to manipulation and price control. If crypto gets handed over the MMs and institutions. Algorithms will control the sector and no matter how good a project is. It won't move on fundamentals but only when the 1% want it to.

The gov probably want stable coins to be operated like a bank which is impossible for usdt which in conclusion stable coins banned.

Talking from experience - government doesn't like to have any competition in their stealing and thieving business