ICO and Crypto Regulation — The 800 Pound Gorillas In The Room

People are getting stressed in the land of the fiat vampire squids and the Establishment; what’s to be done about these ‘dangerous’ new upstarts? Regulators are flip-flopping all over the place — blowing hot and cold everywhere; consistency seems to be sporadic, continuity non-existent…what’s to be done?

It all seemed to be going so well: bailouts from the taxpayer, austerity, bigger bubbles in assets and stocks, the rape of Greece and others for pennies for the benefit of EU big banks…

Then, out of nowhere, a little-known coterie of nerds grew and grew with a breakthrough technology and suddenly started posing an existential threat in the long term. What’s even worse is the fact that the technology is very disruptive and can’t be hijacked, and the ‘nice’ bits for the powers-that-be can’t really be effectively stripped out from the destabilizing ones.

Truly a horror-show if you are a bankster or someone who has a strong personal alignment with the status quo. Fast forward to what we are seeing now — a situation where people are either (a): mono-maniacally calm or running around with their hair on fire screaming that the sky is falling and that Darknet money nerds will start selling their kids and stealing everything that isn’t nailed down or (b): people who are trading ‘rat-poison’ or ‘harvested dead baby brains’ (Buffett and Munger).

All this being played out against a geopolitical backdrop within which the balance of power in the world is undergoing tectonic changes, the likes of which are only seen every few generations or even more rarely. And so the crypto-bashing plays out on our websites, in our newspapers, on TV screens and social media. The bans go in, then get reversed etc.; the FUD monster truly seems to be hiding under every mainstream media pundit’s bed — and in every country too.

When you add in all the economic horror headlines in the world of fiat money, and the wars and austerity and misery, it makes for a very unsettling picture.

However, within all these things ONE thing is a constant: the fact that things are changing, everywhere, and in every area.

And the world will never be the same again.

Joking aside, this is something that bears examination and analysis. What does the future hold in this area?

Can we gaze ahead and maybe tease out a few possible directions and possibilities?

Let’s begin…

The Landscape At Present

A variety of approaches are being explored in various countries and are driven by varying levels of hysteria and engagement. There seems to be a mood of hysteria and enthusiasm, which oscillates and fluctuates wildly; the one consistent thing is that there is no consistency in most places. The industry is young, and many governments are fluctuating wildly between a desire for the benefits of blockchain in terms of its potential for growth with concomitant benefits for control (immutability etc.). which is balanced with an existential fear and loathing of its inherent capabilities for disintermediation, disruption, and lack of centralization.

The mix of approaches varies, and they are balanced against a geopolitical background of flux — as the old unipolar world of Western ascendancy crumbles, and the new multipolar world driven by the rise of smaller challengers and Eurasia (Russia, China and others) is being born. This is historical change, as has been experienced by humanity many times before (nothing is forever — despite what the MSM wants you to believe), and we are living through it right now.

The Great Game has returned, as was recently acknowledged by the U.S., and it is being played out in many areas — the media, energy, trade, culture AND crypto.

This is an arms race and a rush to secure and control a new industry in an age of blistering technological and socio-political and economic change, driven by undercurrents of fear, greed, ignorance and desire, so we should not be surprised by the level of incoherence expressed by regulators and governments.

The fact that smaller and developing/rising countries are also now competing on a more-or-less level playing field for their slice of the ‘pie’ (Switzerland, Malta, Gibraltar for example) also complicates the situation. Things are changing VERY fast and the mainstream is having trouble keeping up; by the time they have a handle on things new projects and technologies appear that render steps taken obsolete– so we go round and round again on the great merry-go-round of regulatory swings.

Approaches Taken: Hostility/Over-complexity

The place of honour here surely has to be given to the U.S, for hostility, mixed messages, inconsistency and downright dumb decisions.

If you disagree then look at this list of absolute howlers (all of which have occurred):

1. Tax reporting and collection on every transaction between alts and btc on exchanges and every cash-out to fiat.
2. Using the Howey test from the 1930s to determine whether cryptocurrencies or tokens are securities, an approach which even Chris Giancarlo at the SEC admits is ‘not fit for purpose’ (his words).
3. KYC/AML as a stick to beat ICOs with, which essentially performs a gating function preventing investment and has resulted in ICOs registering away from the US — a trend which is accelerating; this was noticeably absent in the West during the HSBC drug cartel money laundering scandal (and other banking/terror-funding fiat-based scandals of this kind) a while back.
4. The deployment of things like ‘Chainanalysis’ against ICO pooling, a device normally used against darknet drug dealers etc.
5. Corporate-owned mainstream media constantly bashing crypto, many of whom are partially owned by banking and Wall St. institutions (conflict of interest, anyone?). BTC has been declared dead so many times, if you don’t believe me check here: Bitcoin Obituaries
6. Pressuring exchanges to give up their data without due process — Kraken/Coinbase are good examples of this — people are now moving away from US exchanges if they can (and this will increase).
7. Retroactive legislation regarding sold ICOs and securities laws preventing and complicating public sales/distributions and delaying them; when all they have is a hammer, every problem they see looks like a nail.
8. Blowing hot and cold on whether things are securities are not, producing massive FUD (ETH fake news here recently for example).
9. Arresting people under 2018 laws for crypto taxation for transactions made in 2015 and 2016 etc.
10. A focus on the development of private chain architecture offerings to introduce mediation and centralisation via the backdoor as a ‘safe’ and ‘controlled’ option (controlled by the Establishment, basically).

I could keep going, but the point is made. The overwhelming impression is one of government departments such as the IRS, SEC, FBI and others all taking diverse and mainly negative approaches resulting in chaos, inconsistency and industry flight to friendlier jurisdictions.

The next one is even worse and is coming very soon. If you don’t believe me, then read this piece by Llew Claasen:

The foul smell of state cryptocurrency legislation

An extract from which expresses the essence of what is coming — possibly to be adopted by up to 45 states:

This, as the article quite clearly states, will drive crypto start-ups away from the U.S. — something which is already happening and will accelerate. This also creates precedent in terms of how not to regulate crypto.

Some countries closely tied to the U.S will choose to follow this approach, or parts of it; others will choose not to in a bid to stake their claim to a piece of this new industry.

Unlike in previous times the costs for adoption and gains are much lower and the playing field is a pretty even one, so it is a lot easier to do this, especially now that the U.S administration seems to be on a bit of a mission to alienate and pick fights with everyone, including its historical ‘allies’.

The EU is thinking of some of these elements for regulation for example but, in light of recent trade war rhetoric and events (e.g. the Iran deal cancellation), they are pulling away from the U.S. geopolitically and now may likely see a chance to snatch large pieces of the crypto industry away from the White House, so expect more friendly regulations coming soon — Malta is a case in point (hint: Binance — and many others soon).

Other examples of government-induced idiocy include India’s positions in this area re exchanges and taxations, the fight between the central banker clique and the Kremlin in Russia (which the bankers will lose, I think), the ongoing intra-ministry spat in Korea between the ministries of Justice and Finance and a similar one in China.

This is a long list and is ongoing in many places, at many levels. Meanwhile start-ups and investors will vote with their feet and the technology will easily outpace political and bureaucratic inertia and infighting.

Approaches Taken: Friendly/Reasoned:

Three countries stand out here — namely Malta, Gibraltar and Switzerland; others are also not far behind. Malta and Gibraltar are approaching this primarily at the ministerial level. By this I mean that they have put dedicated resource in place at that level and have wheeled out all the traditional resources to drive that and actually attract start-ups and existing businesses.

This includes the following:

1. Temporary and permanent residence visa easing and facilitation
2. Business registration facilitation
3. Investment incentives and tax breaks
4. Future plans to include educational investment to drive research and attract best-of-breed in that area (mainly Malta, Cyprus too — University of Limassol in particular)
5. Additional avenues to drive this are also being funded also under the ministerial umbrella
6. Future plans for friendly investment regulatory approaches for funding and building start-up value.

Switzerland has a huge head-start here, comparatively speaking:

1. Visa structures are already in place historically and require only minor tweaks and so the legislative cycle is potentially WAY faster.
2. Same goes for investment incentives, tax breaks and business registration — which are both already fully-integrated with their temporary residence visa architecture.
3. World-class academic and educational infrastructure is already in place — only additional funding and direction/tweaks are required.
4. Easy access to LARGE funding potential — hint: cash-rich Swiss banking institutions, VC funds etc.
5. Ministerial resource is being put in place and Switzerland has a long track record of doing this in other areas, so the intellectual capital/experience and political structures to enact this are already in place and easily developed and utilized — look at what they did already with biotech and pharmaceuticals etc.
6. Central location and incredibly high-quality infrastructure — education, highly-educated and skilled populace, schools and universities, air and road links, and excellent trade and investment linkages globally.
7. STRONG privacy laws and protections and a supportive and more hands-off approach for regulation in development of new industry start-ups; this is already in place and doesn’t need to be built from the ground up.
8. FINMA has already staked its claim by adopting an intelligent approach to funding and securities law as regards tokens and ICOs. They can move VERY fast compared to other countries and have way more experience and a more reasoned approach: FINMA publishes ICO guidelines.
9. Stability and sovereignty — no wars since 1515 and no subservience to extra-national organisations like the EU. This means there is zero risk of external supra-national regulatory reversal from above and lots more consistency in the long term; stability is the key here — and this gives them a huge advantage against EU and other countries in the medium to long term. (A potential problem exists for Malta and Cyprus here, and also the status of Gibraltar is unclear long-term post-Brexit)

Many countries are considering the elements involved here, and nations are truly in an arms race in this area.

When you combine this with the speed at which blockchain and crypto are developing and the huge momentum building for mass adoption it makes for a heady cocktail.

As the ancient Chinese proverb and curse says, we are truly living in ‘interesting times’, but in a good way!

Conclusion

As can be seen, things move rapidly, and it is very hard to keep track of things and establish perspective when things are moving so rapidly in so many areas of technology and against a backdrop of a world in flux, undergoing tectonic changes in terms of global power relationships in all areas.

The fact that crypto and blockchain have arrived in the midst of such a realignment, that usually occurs over multiple generations historically, only adds to the excitement and the potential for change over time.

Global geopolitics are in a state of flux, economies too. Convergence and development are also occurring in AI, robotics, IoT, biotech, media and culture, and the development of global data streams as the internet audience becomes more sophisticated and informed.

Make no mistake — the banks, corporations, and governments need to join the party and get on board.

Just bear in mind the following points:

1. People and companies can, and will, vote with their wallets/feet and it is much easier now too.
2. Crypto is a child of the internet — possibly one of its brightest and most disruptive — and the internet was designed at inception (ARPANET) to perceive and react to blockages and censorship as damage and route around it.
3. The underlying infrastructure cannot be unplugged or reversed now — our global economy would END, there would be blood in the streets.
4. The boat sailed in 2009 when Satoshi’s whitepaper was published; even if there was a worldwide ban the protocol could simply be reproduced and propagated over the ‘Net (see above).
5. Given a choice between a door to empowerment and freedom and a door back to nice safe government control with ‘safe’ centralised blockchains people will, over time, choose the former and they cannot be stopped; all the have to do is go through it and get off the mediated fiat bus.
6. Bans and blocking don’t work; read the history of the printing press and the torrenting/copyright battle (hint — whack-a-mole games always end in epic fails).
7. Crypto and blockchain people are extremely tech-literate, and usually at least 3–5 steps ahead of governments and others who are historically hamstrung by bureaucratic and institutional inertia; we move faster.
8. The only consistent quality of what is occurring is rapid and relentless change — get used to it.

I could add other points, but you get the drift.

In spite of all the FUD and the hate, despite all the landmines thrown our way we still remain open to the people who hate us. Come and join us, we want you to be part of a better world that we are building. We are open to you stepping through a door with us to a better future.

However, if you choose to continue on your path, if you continue to refuse to see that these changes are coming regardless, then in times to come people might look upon the ruins of the institutions we have today from a more enlightened perspective.

One day, our descendants might come upon a set of these forgotten ruins and remember Percy Bysshe Shelley’s immortal words in Ozymandias.

The choice is yours — but be quick — the train is pulling away.