Critical Regulations for Cryptocurrency - David Ackerman #5665

So I mean, how much time do we have?

At a high level—and it's interesting because Sam Bankman-Freed hasn't been charged with anything yet—but at a very high level, what we're seeing is the same story with different players. A lot of information is condensed into a few major players. When that happens in the equities world, exchanges like NASDAQ have tremendous rules about what exchanges can and cannot do. In the crypto world, outside certain areas, you don't have those same protections. So people knowingly or unknowingly engaged with FTX International without truly understanding the risks. You have this big multinational institution with very little oversight and regulation, and a whole swath of people using it. We've seen this time and time again. You put power, money, and very few guardrails together, and greed takes over.

No. And that has changed over time, but when FTX first started and became the $20 billion behemoth, everyone was still learning. Regulators across the world were trying to understand the technology. We're still figuring that out in some instances.

It really is. One parallel I make is Bernie Madoff. He was well respected, everyone knew his name, and people threw money at him. Very few took a deeper dive. With SBF, he was a big presence in crypto, a 30-year-old billionaire, a recluse with a foot in fintech and traditional finance. He was a great character to build a narrative around, but very few people pulled back the curtain to see it was a house of cards.

When you rise to power that fast, that alone should be a warning to look closer. As a compliance professional, my job is to protect the market and the people who participate in it. It's on me to create policies and procedures to keep things fair and secure. One flag I missed: I didn't appreciate that not everyone does the same job to the same level of dedication. The decision-makers at FTX, in any other organization, would have been first- or second-year analysts. That's a lesson I hope the whole industry learns.

Do some homework. Look at the individuals running the company and their backgrounds. What's their value proposition? Looking at a meme is not research. It's incumbent on us to get educated. If you don't understand what makes a cryptocurrency valuable other than that others believe it does, stay away until you do.

That's a very personal question. Some risk-averse people might approach it that way. I use my uncle as an example: he's in his late 70s, doesn't have a credit card. It works for him. People need to look inward, understand their own financial situation, how much they can lose, how risk-averse they are. If you're 22 with a 40-year horizon, maybe it's appropriate to take more risk. It's a personal decision.

Frauds create urgency. There's a program by the FCA in London called Take Five. When emotions run high, realize you're being manipulated—maybe by yourself. Take five minutes, take a breath, walk away. If it's an emergency, it'll still be there. Your brain can then catch up and ask the questions they don't want you to ask. I don't think the entire crypto ecosystem fits this category; this is a very public, large example of why we need guardrails. We need to protect people moving forward.

So this is where you and I make your listeners laugh. I'm a lawyer, former regulator, I know more about financial systems than most, and I've been in the crypto world for a year and a half. I don't understand NFTs. I don't get them. My engineers try to explain the value proposition, and I still look at them like I don't get it. There will come a time when we understand it solves a real need, but until it's user-friendly and the story can be told simply, I don't see it taking off. But with so much money and intelligent people in that space, it's a question of when, not if.

I imagine people have had similar debates in the art world. If you told someone in the 60s that a painting of a soup can would be worth $50 million, or Warhol's Marilyn Monroe which my two-year-old could do, but it sold for $195 million. Things have value because people believe they do. The skeptical part of me stops me from investing in certain aspects of this industry, but experience says never say never.

I wish I could answer that definitively. Gary Gensler, the SEC chairman, said of the 8,000+ cryptocurrencies out there, the vast majority are securities. But that requires expert knowledge of the Howey Test. For us, part of getting clarity to prevent these things is understanding what is permissible. If only a few are not securities, tell me which ones aren't. We need clarity in this country. Without it, companies go offshore where there's zero oversight, increasing risk.

Let's put a different spin on it. It's easy to point fingers at bad actors, and we should, because that generates change. But let's not lose sight of the fact that this is a leadership moment for the industry to educate the public and lawmakers. There are good projects based on blockchain trying to do the right thing. Coinbase, for example, has tried to do things right from day one, working with regulators. Compare that to Binance, which is 10-20 times larger because it operates in unregulated areas. If we want to maintain a competitive advantage in the financial system, we need to balance keeping companies here with protecting Americans.

I am as skeptical as many others, on both sides of the aisle. This isn't partisan. My biggest concern is if we don't look at it, we get left behind. There are 115 countries looking at similar offerings, and 50 are ahead of us in advanced stages. Of the G7, the US and UK are last. The UK just elected a PM who is pro-crypto. It's not a question of whether to approach with skepticism, but can we afford to ignore it while other countries pursue it? I think that's a recipe for disaster.

I guess we just have to make sure it's in the right season. Carrie, if I could leave your listeners with one bit of hope: there are people like me from traditional finance who know how to protect the marketplace. We're working incredibly hard to ensure this industry develops in the right way. Please don't think there aren't those of us looking out for you. We are, and as time goes on, we will come out on the right side.

The company is called Mobile Coin. We're trying to create the international Venmo or Cash App. You can find us at mobilecoin.com, and if anyone wants to connect with me directly, find me on LinkedIn.

Sounds great. Have a great Thanksgiving.