In his column for Law360, former SEC Attorney John Reed Stark once again spoke out massively against Bitcoins. However exciting, disruptive and innovative the blockchain technology may be, the value of the Bitcoin would only result from its inherent criminal potential.
Much of bitcoin’s value, outside of mere speculation, is derived solely from its ability to facilitate criminal activity. Need a fake I.D., bottle of opiates, a cache of credit card numbers or a thousand social security numbers? Need a way to collect a ransomware payment? Need to fund terrorist-related activities? Need to hire a hitman? Need to finance an election tampering scheme? Cryptocurrencies like bitcoin have become the payment of choice for these, and a slew of other, criminal enterprises.John Reed Stark – The SEC’s Looming Initial Exchange Offering Sweep: Part 2 (published on Law360 on May 31, 2019)
As one-sided and almost polemic as these statements from Stark may sound. There’s a grain of truth in them. The many cases of crypto-based fraud and money laundering in recent years prove in essence the accuracy of the statement. It is not said, however, that this must remain so.
In my opinion, however, Stark neglects the factor of time and the ability of markets and regulators to learn and adopt when dealing with new financial instruments. In the past, regulators have always found new and innovative ways to regulate new financial instruments and technologies.
History: A Pump-and-Dump artist as first SEC Chairman
In the time before the SEC in the early 1920s, the environment on the U.S. stock exchanges were comparalbe to those in the crypto sector today. It was the time when the first investment funds and so-called stock pools were created. The markets were driven by fraudsters, scammers, and artists. The father of the later US President J.F. Kennedy, Joseph P. Kennedy, who allgedly made a fortune as an alcohol smuggler in Prohibition and a close relationship with the U.S. Mafia, was notorious as a notorious insider and stock artist. Many naive retail investors lost a lot of money back then with Kennedy’s ventures.
In 1934, U.S. Congress established the independent Securities and Exchange Commission to end irresponsible market manipulations and dissemination of false information about securities. Roosevelt named Kennedy to head the SEC clean up of Wall Street. Roosevelt did so because Kennedy because of “his knowledge of habits and customs of business to be regulated and ability to moderate different points of view on Commission.”
In this respect, the SEC and the other regulators will also succeed this time in drawing the right lessons from the misuse of cryptocurrencies in the times of the ICO hype and letting the right people take the right measures. The regulators must follow the technology and not the other way around.