Can’t the crypto crowd see the scars of 2017?

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Coinbase Global Inc. boss Brian Armstrong has long believed that the adoption of digital currencies like Bitcoin would look like a straight arrow towards progress, much like the Internet’s development of a network of interconnected computers across the board. an economy of applications and businesses.

Yet her storm of angry tweets against the U.S. Securities and Exchange Commission on September 8, after her behind-the-scenes threat to sue Coinbase if it launched a paid product called Lend, makes it clear that the trajectory of cryptos will not be so. simple. .

The journey seems more circular than linear, with regulators determined to remember the lessons of the last boom and recession of 2017, even as crypto advocates are downplaying the risks. Since this back-and-forth is here to stay, the industry is doing itself a disservice by accusing watchdogs of stifling innovation and over-pampering consumers; if anything, the team of SEC chairman Gary Genslers will only crack the whip with more enthusiasm.

We have been here before. Armstrong’s anger at the SEC’s summary judgment that Lend should comply with securities rules, which likely makes him less profitable for Coinbase, echoes the latest crypto boom, which has seen hundreds of token sales bring in $ 20 billion in two years.

At the time, many crypto entrepreneurs were convinced their tokens did not meet the definition of a security and warned that their regulation as such would stifle innovation even if scams were happening right under their noses. The taming of this “Wild West” came relatively late. By the time the SEC boss said almost all of the initial coin offerings looked like an unregistered security, the price drop had already started.

While the 2017-18 market implosion left little impact on the financial system as a whole, regulators are still cleaning up the mess today: On Wednesday, the SEC filed a complaint against an 18 million ICO. 2017 dollars which she said was in fact an unregistered security. offer.

The lesson that haunts regulators is that falling asleep at the wheel before the next cryptocurrency collapse could leave far bigger scars than in 2017.

Booming crypto prices have propelled the size of the markets to $ 2 trillion and fueled all kinds of speculative investments, such as automated DeFi markets offering double-digit returns on locked token pools or items. collection of cartoon blockchain vulnerable to manipulation. There is more surveillance than was used. be, but there’s also more risk: Counterparty risk and financial crime are among those listed in a Wharton School-WEF report on DeFi, which Ciphertrace says has recorded $ 361 million in hackers this year. . Elizabeth Warren called crypto a shadow banking system. .

The lesson for the industry should be humility. Coinbases’ plan may have nothing to do with ICOs, but Armstrong is publicly yelling at a planned crypto lending application, which experts say looks a lot like a bond paying coupon or paying stock. dividend (that is, a stock), is quite tonic. -deaf. (My colleague Matt Levine suggests that Lend looks more like a bank account, which raises even bigger questions.)

Coinbase is a publicly traded exchange based in the United States; it is not suspicious that he is in the crosshairs of products linked to volatile asset prices. And it’s volatile: This week, Bitcoin fell 17% in one day, after a difficult rollout as legal tender in El Salvador.

The challenge going forward is whether regulators can avoid catching up in an industry where technology tends to overtake oversight.

The European Union, which has recently entered the scope of anti-money laundering rules, is in the process of putting in place a complete set of regulations that would oversee stable coins (tokens whose price is generally indexed to a currency or stabilized by an algorithm) and would require trading platforms. be subject to capital requirements. But Hubert de Vauplane, a partner at law firm Kramer Levin, fears the EU rules will prove to be lagging behind when they are finally launched.

More promising is the recent global crackdown on crypto exchange Binance, hit by regulatory warnings from Canada to Japan, which shows a global willingness to adopt business models that appear to sidestep the law.

Carol Van Cleef, a digital asset lawyer, likes to say that the SEC doesn’t work in days or weeks, but months and even years. As the regulator calls for even more resources to tame bad crypto players, the vision of a crypto economy with Coinbase at its center seems a bit more distant.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He previously worked at Reuters and Forbes.

This story was posted from an agency feed with no text editing. Only the title has been changed.

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