CRYPTO: The Manifest Absurdity and Danger of Proposed "Regulation"

 

Some Problems Can be Avoided at the Outset

This is the follow-on to my previous post today on crypto “assets”.

A look at the second and more absurd manifestation of advocating the wrong sort of regulation.

Why is regulation a “bad” idea?

First, the regulation advocated will give the appearance that “crypto” is an “asset”.

Second, it is major step in entangling our financial system in risks it would be better off avoiding. It may also be the first step on the slippery slope of governmental support/insurance for crypto.

Conveying the Appearance of Approval and thus Value

A very simple analogy.

Crypto is like patent “medicines” or illegal drugs.

Just as these are not medicines, crypto is not an asset.

An asset has inherent value. A medicine generally helps improve health.

No responsible physician nor government agency/regulator would give the appearance that patent “medicines”, miracle cures, or narcotic drugs are “good” for one’s health.

Similarly, no responsible finance professional or government agency/regulator should do the same with crypto.

Regulation can of course be of two types:

• Prohibition 
• Establishing standards

In the case of dangerous substances, only the first type is good.

That is the prohibition of their sale.

This will not eliminate their sale, but will limit the potential damage.

Banks and other financial institutions are not permitted to provide banking services to drug dealers. 

Investment advisors and exchanges do not list or trade in securities for these companies

Similarly, they should not be allowed to do so for crypto.

The second type of regulation advocated by some pundits is not good, because it gives an appearance of official sanction of a product.

“To the best of my understanding” neither HMG or the US Government prescribe purity standards for street heroin, cocaine or crystal meth. Nor do they establish requirements for manufacturing, packaging, etc.

To do so would imply some sort of approval.

So would setting similar regulatory requirements on crypto exchanges and stablecoins.

Entangling the Financial System and Government

This is potentially the most dangerous outcome

If these imaginary assets are “validated” through regulations, then it is highly likely that our and other countries’ banks and investment companies will throw open the doors to crypto intermediaries and transactions. 

Other service providers – audit and accounting firms, law firms-- as well. 

Adding to the appearance of value.

When the gullible who have brought crypto find that their “assets” are worthless or worth less than they paid for them, it’s likely they will turn to our banks and investment companies for recompense and perhaps even to the government for failure to regulate. A potential backdoor to government support.

But there is more.

The world financial system is already freighted with enough risks.  

We don't need to pile on any more.

This is one that we can take a pass on.