A Call for Crypto Honesty

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Summary: I’m talking about the mental game of investing, especially as it relates to the crypto markets. Subscribe here and follow me to get weekly updates.

The crypto industry is living a lie.

Most tokens are really securities.

The crypto industry wants you to believe that most tokens really aren’t securities. It’s the Big Lie.

Today, I’m going to tell you how (and why) this big lie took hold and how we’re ushering in a new era of crypto honesty. In the end, I hope you will see that the Big Lie is simple and obvious, and how you can help us move towards honesty. (It takes two minutes.)

Why Most Tokens Are Securities

If you have just joined us, the question of whether or not tokens are securities is at the heart of the crypto industry. Everything revolves around him.

To simplify, think of a security as a share of a company: like buying APPL shares to invest in Apple. Companies issue these shares to raise funds, and then they use that money to grow their business.

Of course, that’s exactly what happens in crypto: a few whiz kids have an idea for a new product, they create a new token and sell it to investors, then live off the money while they turn the product around. into something great (or not). ).

It’s so obvious that I shouldn’t even have to say it: most crypto entrepreneurs sell tokens to investors to fund a business.

It may not be a business in the traditional sense (i.e. there may not be a corporation), but the mechanics are the same.

Sell ​​tokens. To collect money. Build the business.

There is nothing morally wrong with that. As long as the intentions are good (and most entrepreneurs I’ve met have good intentions), it creates value for the world, in the form of new products or services. In America, we applaud small business owners.

But legally, that’s another matter. Securities, of course, are regulated by the SEC, the agency charged with protecting investors (which, to be fair, is an impossible task, since many investors don’t want to be protected).

Starting a small business is easy. But raising funds from investors, under current laws, is difficult. Really hard.

Small business owners power America. I should know (I am one).

Raising money from the general public in an initial public offering can cost upwards of $100 million: that’s a nonstarter for startups. There are other vehicles like Regulation A that can allow contractors to raise smaller amounts, but they are still complicated and expensive.

The reality is that you have to fundraise just to fundraise.

This creates a Catch-22: you need a certain amount of money just to hire the legal team and file the offer, then more money to do all the marketing and promotion for your Reg A offer. During this time, you are trying to create a product, find the right market and grow the business?

For most entrepreneurs, this system does not work.

So when blockchain-based tokens arrived, it was a revelation. It was a way to raise money quickly, so you could have some leeway to build a product and see if it worked.

Unlike the legal route, creating tokens consisted of just a few lines of code. Crypto made it easier to receive money from investors and started putting it to work. This is what fueled the ICO boom of 2017, and every blockchain boom since then.

The problem is that under current law, most tokens are actually unregistered securities.

So said Gary Gensler of the SEC, but the crypto industry doesn’t like it. So the industry focused its considerable brains on finding ways to make tokens, not securities…and thus began the big lie.

“Most” does not mean “All”

When we say “most tokens are securities”, remember that “most” does not mean “all”.

This is where the SEC breaks down.

To be clear: some tokens are legitimately not securities. Our BMJ reward token, for example, is not used to raise funds – it’s a loyalty token for our Premium subscribers, like any other reward program.

Likewise, it’s hard to argue that Starbucks’ new coffee collectibles are titles, or the new NFT avatars on Reddit. These tokens drive business, but they are not securities. Big difference.

But if you’ve raised money to start a business, passing all four parts of the Howey test, you’ve sold an unregistered title. To argue otherwise is the Big Lie.

The latest form of the Big Lie is decentralized governance tokens: the idea is that if crypto projects are owned and run by the people, no one is legally accountable. The SEC has no one to sue.

As I have said many times, this is a doomed experiment. The beauty of great companies is that they are run by great managers and leaders. (Can you imagine if the public ruled Apple?)

Crypto projects are finding decentralized governance tokens a mess because most token holders are a) too busy to get involved and/or b) lack the technical knowledge to make meaningful contributions.

There are many other forms of the Big Lie, usually rhyming with IPO. (ICO, IDO, IEO, etc.) But they all involve raising money, getting a token that functions like a stock, and watching the price on tickers that look exactly like a stock exchange:

A path to crypto honesty begins with three principles:

Most tokens are unregistered securities; To avoid securities law; Because these laws do not work. Why Securities Laws Don’t Work

Just watched the four-part Netflix series MADOFF: The Monster of Wall Street about Bernie Madoff’s Ponzi scheme that defrauded investors out of $65 billion. The documentary details the SEC’s inability to find the fraud, even when repeatedly alerted to it.

The laws supposed to protect investors from Bernie Madoff? The laws don’t work.

America was founded on the principles of hard work and entrepreneurship: the pioneering spirit. But securities laws, as we just saw, make fundraising impractical for most entrepreneurs and pioneers. The laws don’t work.

The SEC will say that securities laws, most of which were written in the 1930s, have served us pretty well. But there have been a lot of updates to the original laws since then, because, well, the laws don’t work.

The laws themselves are not written by the SEC; laws are written by Congress. (The SEC just enforces them.) To get better laws, we need congressional action.

Better laws will allow entrepreneurs and startups to raise funds by issuing tokens to the public, perhaps up to a modest limit (say, $100,000). They can then use these tokens to seed the network and create something useful or awesome.

What’s wrong with that?

What people want is the ability to use tokens to fundraise. It’s the huge, obvious elephant in the room. I believe we can do that and protect investors at the same time.

The laws don’t work: they are unnecessarily restrictive and prohibitively expensive for small businesses and entrepreneurs. Just look at the explosion of token-based projects since 2017: that should be the only proof you need.

People want to start businesses, build businesses. There is huge untapped potential for creativity and entrepreneurial talent in small businesses. Better laws will mean an explosion of amazing people creating valuable products and services, creating jobs and wealth for the next generation.

Right now, this explosion is locked away in archaic securities laws.

The good news is that laws are human inventions and humans can change them. Rather than twist around the Big Lie, let’s do something radical: let’s start telling the truth.

If you are a US citizen, write your senator. You can copy and paste this form letter:

Dear senator [NAME],

Our current securities laws are not working.

As a crypto investor, I urge you to work with your fellow senators to find better laws to govern digital assets, so honest investors like me don’t feel like criminals for investing in bitcoin. ‘Ethereum and other tokens.

I believe in the power of these technologies to change the world, and I think the United States should lead the way in finding a way to protect investors while encouraging crypto to thrive. Both are possible.

Please work to write better securities laws that allow crypto entrepreneurs to innovate, while allowing crypto investors to participate.

Sincerely,

[YOUR NAME HERE]

Let’s be honest: that’s what we really want. Let’s go out and say it.

The worst they can say is no. But the best they can say is YES.

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