scorecardThe whining from these crypto execs has got to stop
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The whining from these crypto execs has got to stop

Linette Lopez   

The whining from these crypto execs has got to stop
CryptocurrencyCryptocurrency5 min read
  • Crypto execs keep whining about basic financial regulation.
  • It is an exasperating display of the tech world's unique ability to blend ignorance with entitlement.
  • Our Founding Fathers never mentioned anything about a basic right to earn interest on your crypto (or any) assets.
  • This is an opinion column. The thoughts expressed are those of the author.

The whining about financial regulation from the crypto executives has got to stop. Not only is it a mind-bending display of entitlement, but it also never fails to demonstrate how little some of these individuals - seeped in the tech world - have bothered to learn about finance.

Take Brian Armstrong, CEO of Coinbase, for example. On Tuesday he took to Twitter to accuse the Securities and Exchange Commission of being "sketchy" for telling his company that it cannot issue a product that the regulator deemed a security, and for launching an investigation into the company.

The product the SEC is questioning would allow customers to lend their crypto to Coinbase for a yield of 8 times the national average of high-yield savings accounts. On Twitter, Armstrong explained that his company was cooperative enough to give the SEC a courtesy heads up. That, he figured, should show enough goodwill to keep regulators from asking more questions.

What's more, he complained, the SEC should have to explain why they consider the product Coinbase was going to roll out a security and not what the company has argued - that the new feature is "not an investment contract or a note."

Lending assets to a company which then packages it, lends it out again, and gives you interest in exchange sounds a whole lot like a bond. And a bond is a very basic financial security and very much regulated by the SEC. Even if it's not quite a bond, as Bloomberg's Matt Levine noted, it could also sound a lot like a savings account - which is subject to even tighter banking regulations. Either way, a CEO who does not appear to understand these connections is just one more aspect of crypto that should worry regulators - and they don't need more reason to be worried.

We all know that crypto's opacity has enabled cyber ransom; that the prices of cryptos are volatile and that it's not backed by the US government (or anything, really); and that in an effort to create a "trustless financial system" actors run around the crypto market anonymously.

Crypto execs should know that all of these aspects of the product they're building their business on make it dangerous, and they should have enough respect for the rest of us to know that we know it too.

I need you boys to stop crying

Armstrong is hardly the only whiner in the crypto bunch. In statement posted on the company's website in July, BlockFi founder Zac Prince complained about a freeze on its BlockFi Interest Account product by state-level regulators.

"BlockFi has a multi-faceted retail and institutional business, but the recent regulatory focus has been on the BlockFi Interest Account (BIA)," Prince said in a statement. "We have been engaged in a productive discourse with regulators to protect your interests and expand accessibility to innovative financial solutions for all. This is our commitment to you - to fight for your rights to earn interest on your crypto assets."

I do not recall seeing anything about the right to earn interest on crypto (or any) assets in the Constitution. No, this "right" to earn yield on crypto derives not from American citizenship, humanism, or Enlightenment principles - it derives from a deep and misguided sense of entitlement. Regulators are not required to approve any product these companies want to roll out if it is a risk for investors or to the stability of financial markets.

It is misleading to say, as Armstrong did, there is something "shady" going on simply because regulators do not want to approve the product. The SEC's role is not that of a fourth-grade teacher signing off on a science project. Regulators have a society to consider, and we are not all here for your financial experiments.

I will be so annoyed if these guys break the economy

Silicon Valley is in a funk. More than ever it is feeding us lazy, useless, derivative tech and acting as if consumers and regulators should embrace it without questions. There are reasons embedded in the industry's incentive structure that have caused this dynamic (I go over them here), and it is hardly limited to crypto. But crypto has seen some of the worst of this cavalier attitude, and the features of its recklessness are especially dangerous in finance.

For example, Wall Street is supposed to have "know your customer" requirements so that it does not (in theory) launder money for criminals, or finance illicit activities. While some crypto companies, like (to their credit) Coinbase, have implemented these checks, a significant part of the crypto world still revels in the anonymity of its actors. But if we require transparency from Wall Street, we should require same for all of crypto. The same bad guys we're trying to keep out of our banks should be kept away from digital currencies too.

Another example - remember 2008? Banks like Bear Stearns and Lehman Brothers vaporized because they didn't have enough cash on hand. Crypto firms are not subject to the same capital requirements as banks, even though they're handling assets way more volatile than most bank assets. Plus, the capital crypto firms do have is not backed by the Federal Deposit Insurance Corporation. The FDIC was created after the pain of bank runs during the Great Depression, when customers had no recourse for their losses.

All of this is to say, if you lose your money in this crypto nonsense I do not feel sorry for you at all. However, if there is a run on some of these massive crypto firms we do not know what it will do to the wider economy. Crypto's overall market cap may not seem like a threat to the wider economy or financial system now, but it's unclear what could happen as it grows and more people invest in it. Regulators, in an ideal world, are supposed to head off disasters like that before they happen.

And yes, I understand that some of the excitement for crypto comes from a disillusionment with traditional financial institutions, but the solution to that is not to make even worse financial institutions with fewer rules run by people who appear to know even less about markets. The solution is more transparency and a greater commitment to the rule of law for everyone.

If that still doesn't make sense to you - a crypto genius - at least for the love of God stop whining.