Time for Crypto to Put the Pedal to the Floor

In simpler terms, Brody draws a parallel between blockchain and the gradual rise of Voice over Internet Protocol (VoIP). He argues that even though the internet initially had its disadvantages, it became predominant in communication because it was affordable, easily accessible, and the competition among internet communication services was fierce.

To be honest, I find the analogy quite insightful. However, it seemed as if Brody overlooked a vital component in the sum, didn’t he?

Aaron Brogan serves as both the founder and leading lawyer at Brogan Law, a legal practice that concentrates on the intricacies of cryptocurrency legislation.

Regarding Voice Over Internet Protocol (VoIP), he explains that the process unfolded over a period of about 20 years, encompassing deregulation, the dissolution of monopolies, reorganization, and the transition from landline to internet and mobile services.

This comparison treats deregulation as a foregone conclusion, but I think it is actually the crucial blocking issue of our time. Since January 2021, Securities and Exchange Commission Chair Gary Gensler has implemented policy to stifle cryptocurrency’s development.

With Donald Trump rising to prominence, the industry anticipates a fresh SEC chairman and altered policies. However, this is only the beginning; more changes are likely to unfold in the future.

Regulatory Arbitrage

The truth is, deregulation is not something that happens on its own. Cryptocurrency’s value depends in large part on achieving it. These next four years will provide an opportunity to do so, but we should expect a battle. Here’s why.

For almost a century, the U.S. capital markets have been governed by a single regulatory framework. Following the Great Depression, a sequence of legislations established the Securities and Exchange Commission (SEC), granting it the authority to impose certain conditions on companies aiming to acquire public funds. This comprehensive system of securities regulation encompassed duties such as publishing a prospectus, maintaining regular reporting, and requiring some financial intermediaries to register as broker-dealers or national stock exchanges.

Despite individual components potentially providing necessary consumer safeguards, the collective impact of this system makes it excessively costly for small and medium-sized businesses to tap into public capital markets. According to PWC’s assessment, even the smallest initial public offerings can range from 2 million to 12 million dollars. Maintaining compliance with these regulations is also burdensome financially, as acknowledged by the SEC itself, stating that “the disclosure requirements impose an unfair burden on smaller reporting companies in terms of cost and compliance.

There are several exceptions that permit the selling of what are known as exemption securities, such as Reg D, Reg A, and Reg CF. However, these systems significantly restrict the availability of secondary market trading, and having access to secondary markets is essential in order to draw initial investments.

The outcome is a significant hindrance to the thriving economy. In fact, the management consultancy firm McKinsey & Co. pinpointed obtaining sufficient working capital funding as a major constraint for the efficiency of small U.S. businesses.

Cryptocurrency was a technological development, but the effect of that development was to create “regulatory arbitrage.” Without the old sclerotic restraints, the fresh capital markets that cryptocurrency exposed exploded almost immediately. In 2018 alone, cryptocurrency firms raised $20.3 billion in token offerings—compare this to the anemic $500 million raised in Reg CF offerings in 2023.

The difference was not just in the primary issuance. Secondary cryptocurrency markets were incredibly liquid almost immediately, which likely helped projects raise funds.

Despite numerous initial coin offerings (ICOs) from 2017 and 2018 failing and losing their value rapidly, some projects that received funding during this boom have experienced long-term increases in worth. For instance, Polkadot (DOT), which raised $65 million in a public token sale in 2017, now boasts a market cap of around $7 billion. Solana (SOL), which garnered $1.76 million in a 2020 public token sale at a price of $0.22 per token, has since seen an increase of over 900 times, currently valued at $198.89 per token. Similarly, Chainlink (LINK), which raised $32 million during its 2017 ICO priced at $.11 per token, has subsequently appreciated by 123 times to $13.56 per token.

Despite crypto’s recurring periods of growth and decline, Chair Gensler’s rise to power in 2021 seems to have cast a shadow over the industry that goes beyond the typical volatility. For instance, take a look at the CoinDesk 20 index, which tracks the largest cryptocurrencies – only one has been introduced after January 2021.

Reflecting on it now, the regulatory measure seems logical. If the primary strength of cryptocurrencies lies in providing viable ways to bypass excessive regulatory scrutiny, then their presence directly questions the authority of regulators.

The relationship between cryptocurrencies and the overall U.S. economy isn’t a battle where one party’s gain equals another’s loss. When crypto ventures and local businesses prosper, it benefits everyone. However, the struggle between the SEC (Securities and Exchange Commission) and the cryptocurrency sector is indeed a zero-sum game. In this scenario, if the SEC decides to restrict these markets, then cryptocurrency projects can’t operate within them. Conversely, if crypto projects gain access to these markets, the SEC’s restrictions become irrelevant for the time being.

The Years Ahead

Currently, Donald Trump has expressed his intention to eliminate an unofficial ban on cryptocurrency initiatives, stating that the regulations will be drafted by individuals who are enthusiastic about this sector. Consequently, the crypto industry is enthusiastically welcoming Trump’s election as a positive sign for growth and development.

As a crypto investor, I’m holding back on the celebration dance – this is only the starting point. Once you understand that cryptocurrency undermines the Securities and Exchange Commission (SEC), it becomes clear that they won’t relinquish control without a fight. The individual chosen by Mr. Trump as SEC chair will likely be more industry-friendly than Chair Gensler, but they’ll still be driven by the same motivation to maintain power. And four years from their appointment, they’ll move on, and another figure could step into their shoes.

On November 5th, the crypto industry gained an opportunity. Between now and January 20, 2029, it’s crucial for us to accelerate our efforts – to make sure that the person taking over at the SEC after this period will never have the ability to restrict the industry again.

From my perspective, the task at hand appears to have a two-part strategy. Initially, we need to broaden the acceptance of the industry within retail sectors significantly. This widespread adoption is crucial to earn consumer backing that makes it an essential part of the landscape. A telling example is Uber, whose survival was ensured when customers directly communicated their support to policymakers during a challenging period. Given its nature, Cryptocurrency presents a prime opportunity to reenact this scenario. Thus, our proposition to retail voters should be compelling and unquestionable.

Next step, let’s collaborate with our newly formed partners in Washington to establish a legal framework for accepting cryptocurrencies as a regulatory alternative permanently. A partial approach won’t suffice. It is up to Congress to create a robust structure that will stand the test of time and future administrations.

The clock is ticking.

As a passionate crypto investor, I’d like to clarify that while my perspectives shared here might resonate with you, they may not always align perfectly with the views of CoinDesk Inc., its owners, or affiliated entities. Let’s navigate this exciting world of cryptocurrencies together!