Here's the thing. You're walking in here all smug like "told you regulation was necessary." Meanwhile all the people who got into crypto because they don't like regulation aren't expressing any regrets. You're "I told you so" is falling flat.
You're trying to frame crypto-enthusists as hypocritical fair-weather libertarians that will change their mind just as soon as there's a scam or hack which affects them. Yet it never materializes. When exchanges get hacked you don't here "wahh let's get regulation". You hear "Don't keep money on exchanges".
While true, I tend to believe regulation then empowers this same kind of thing to happen, but legally and unreported at firms like JPMorgan, Goldman, Morgan-Stanley.
Or: after centuries of iteration our current regulatory environment manages to prevent all but the largest, smartest, and toughest fraudsters from doing what they do, and we should focus on improving those regulations (e.g. by working to separate money and politics) rather than ripping them down on the off chance that for some poorly explained reason the market will behave better this time.
We don't really have mechanisms to iterate on regulations from a societal perspective. The body polity needs to be able to evaluate the effectiveness of regulations in order to iterate on them, and that's so far outside the capabilities of the voting public as to be unimaginable.
Public choice theory would suggest that the iteration is happening on the political and public manipulation front, with rent-seeking market incumbents growing more effective at selling the public on the need for steeper barriers to market participation, and persuading political representatives to institute such barriers.
The story of the "Money Services Round Table" would be a good example of this:
You could make the exact same argument about the stock market. "Nobody is forcing people to invest in a stock as I'm artificially manipulating the price." Pulling a con doesn't automatically become moral just because it is done with a new tool.
Edit: whataretensor's comment was modified, which makes my comment seem quite out of place. The original text of the comment I was replying to was "Nobody is forcing anyone else to take part in these schemes. The people who would regulate this space seem to not understand it at all."
On the contrary, it shows how the market responds and evolves on its own without top-down enforcement.
These pump and dumps will eventually stop being effective, because in a situation where information flows freely, and there are no backstops or gatekeepers to protect investors from their own gullibility, natural selection and other bottom-up adaptive processes go to work.
You can even see the growing 'immunity' that investors have to these pump-and-dump schemes on cryptocurrency forums. People on the forums are much quicker to see through attempts at coordinated pumps now than even a few months ago. Letting things play out results in a more robust configuration than trying to guide the market from the top-down through the creation of powerful gatekeepers and laws that rob people of their agency.
That's one way in which the market adapts. Overprotecting children or investors is not in their long-term interest, or society's.
Ultimately it comes down to whether you think top down processes are more effective, or bottom up ones. I personally know some older people who wanted to invest in Ripple. They talked to me about it and I made them promise not to do so, and to always check with me before investing in any cryptocurrency. That's a bottom up adaptation that makes a couple individuals safer. Sure the government could have just banned them from investing in Ripple, but that's a crude (and Big-Brother-ish) solution that's going to have untold numbers of unintended consequences.
Our cognitive biases will prefer the top-down solution, because it's easier to reason about, but I would argue that reason and evidence tells us that bottom-up works better in the long run. A billion micro-adaptations are exponentially better than a couple macro ones. The world is far more complex/detailed than any regulatory agency can handle.
==I'm rate limited, so responding to Sangermaine's comment below after this point==
>>What if, instead of these older people having to happen to personally know someone knowledgeable about crypto like yourself, or knowing how to find one and not get duped in some forum, there were regulations requiring public disclosure of various information regarding cryptocurrencies and their backers? You know, like we already have for securities? Then these older people could research this information and decide for themselves what to do, which seems to be what you advocate.
You're looking at current regulatory restrictions through rose-colored glasses. The current law requires far more than just disclosure. It also requires having a certain number of 'market professionals' (as determined by the regulatory agency) vet the offering, and for the agency itself to vet it and give it approval before the issuer can offer it to anyone other than the rich (accredited investors).
This inevitably leads to the cost of publicly offering a security to run into the millions of dollars.
There are massively negative unintended consequences from raising the financial barrier to capital raising. Just because they're not directly felt, doesn't mean they aren't just as impactful as the more direct negative consequences that such a blanket restriction would ameliorate.
Look, there are no perfect solutions. We have to think about this in terms of long-term impact, and trade-offs. The long-term result of preventing politicians from imposing laws that violate people's right to do with their own money what they wish, is the emergence of a relatively more vigilant investing public, that generally knows better that it has to do due diligence, and that through experience, some of it bitter, has developed relationships with individuals they can count on to help them with their investment decisions.
The alternative is that we create a centralized gatekeeper and presumably that will stop more scams, but that also stops more opportunities. We would be taking away people's agency, and replacing the billions of decisions that the investing public would have collectively done, with the much smaller set that a regulatory agency does when making judgements on what people are permitted to invest in.
>>"Allow everything" or "ban everything" aren't the only options, never have been, and in the real world aren't.
I never suggested allowing everything. I think fraud should not be allowed. But I don't think we should preemptively ban everything that falls within some broad class of economic activity that has not gotten the approval of some gatekeeper.
> Overprotecting children or investors is not in their long-term interest, or society's.
There's a reason why the term "accredited investor" exists: it designates people with high enough net worth that even in the event of total collapse of their speculation they will not be a burden to society. That society does overprotect institutional investors like banks is a different thing.
> Our cognitive biases will prefer the top-down solution, because it's easier to reason about, but I would argue that reason and evidence tells us that bottom-up works better in the long run.
Not in cases where basic human greed is involved. People involved in MLM schemes, for example, are known to even f..k up their family for personal gain. Greed is powerful and highly corrosive.
>There's a reason why the term "accredited investor" exists: it designates people with high enough net worth that even in the event of total collapse of their speculation they will not be a burden to society.
And it completely fails. Because the non-high-net worth individuals still de facto invest directly but they pay to do it via a broker. Thus the wealthy establish for themselves a rent seeking position and successfully sell it to people like you as "consumer protection". Did you honestly think that a law which codifies only letting the wealthy take advantage of certain opportunities would actually help society?
Praytell would you also be in favor of only letting "accredited intellectuals" go to college just to ensure that the middle class doesn't blow their life savings on a poorly chosen major?
There's a reason why the term "accredited investor" exists: it designates people with high enough net worth that even in the event of total collapse of their speculation they will not be a burden to society.
That’s a much better and more succinct response to the all-to-common complaint about “accredited investors” than I have come up with. One would think it obvious given the long, successful history of MLM, Ponzi schemes, and the like. But one of the things that make MLM/Ponzi work is Fear of Missing Out, and I hear a lot of FOMO when I hear a complaint about accredited investors.
Limiting direct investment to the very rich (accredited investors) is going to do massive damage to the investing public in the long run. You're denying the bulk of society the trials and tribulations it needs to evolve.
It's obvious to me that the negative unintended consequences of preemptively banning an entire class of economic exchange to the majority of people (unaccredited investors), and creating a centralized gatekeeper that gives exemptions on a case by case basis for projects that it approves, is going to be massive. That we see this so differently suggest we come from a very different set of personal experiences and perspectives on the world.
>>Not in cases where basic human greed is involved. People involved in MLM schemes, for example, are known to even f..k up their family for personal gain. Greed is powerful and highly corrosive.
That is not true. Human greed makes humans motivated to avoid bad investments as well. That's why the market adapts over time to be less gullible.
==I'm rate limited, so I'll respond to your comment below after this point==
>>There's a difference between investment (everyone can go via an online broker and trade with stocks) and dangerous speculations like IPOs or ICOs.
There's value in learning to spot promising new tokens, or in the case of IPOs, securities, as doing so is very lucrative. It's also beneficial for society for more people to become skilled in this activity, as it means faster technological evolution. Creating a class of investment lawyers and VCs who monopolize these sectors is not in society's interest.
>>and look where society is today, where people devise more and more elaborate fraud schemes and people are still believing it and sometimes invest their entire life savings into fraud, despite everyone and their dog blaring that they are investing in a fraud.
That doesn't show that the market doesn't learn. You're not demonstrating that the same proportion of people are falling for manias today as in 1636. You're only pointing out the obvious: that scams and irrationality still exist, and claiming this proves that no learning/adaptation happens.
To Sangermaine:
>>Nope. For the same reason that people still commit crimes despite knowing the consequences, greed for possible profit will always be the more powerful motivator.
If it were "always the more powerful motivator", then everyone would commit crime. You're falling for the pessimistic bias which inevitably leads to repressive societies. Over-reaction to crime is more dangerous than under-reaction.
>That is not true. Human greed makes humans motivated to avoid bad investments as well.
Nope. For the same reason that people still commit crimes despite knowing the consequences, greed for possible profit will always be the more powerful motivator.
>That's why the market adapts over time to be less gullible.
No they don't, and never have. People just keep getting duped until rules and regulations are put into place. We have all of human history to show this.
You're simply expressing semi-religious beliefs about how things should work. We're concerned with how things demonstrably have worked and still work.
> Limiting direct investment to the very rich (accredited investors) is going to do massive damage to the investing public in the long run.
There's a difference between investment (everyone can go via an online broker and trade with stocks) and dangerous speculations like IPOs or ICOs.
> That's why the market adapts over time to be less gullible.
"The market", if such a thing exists, does not learn. For an example, look at the tulip mania - in 1636 - and look where society is today, where people devise more and more elaborate fraud schemes and people are still believing it and sometimes invest their entire life savings into fraud, despite everyone and their dog blaring that they are investing in a fraud.
What's the evidence that learning/adaptation happens in a positive direction in markets? Without the directionality indicator, it sounds more like "this system has changed" rather than "this system has improved".
Also, the positive assertion that markets learn/adapt requires evidence more than the negative. The default assumption should be that the market changes randomly.
Society has learned through long and bitter experience that ignoring this particular problem doesn't make it go away. It's exceedingly generous to call the supposition that ignoring it a bit longer will cause it to go away a "solution." I'd call it a pipe dream.
The cryptocurrency market demonstrates this in accelerated time. The quality of offerings is far better today (though still massively dominated by marketing hype/bullshit) than it was three years ago. The amount being lost to scams was also substantially more, proportionally, three years ago.
Are you actually suggesting that government ought to let fraudsters / unregulated securities run amok? No legal framework for punishment or restitution?
Fraud should be punished. But bad investments are a result of far more than just fraud.
Also, punishing fraud, and creating a gatekeeper that every party needs to get approval from before being allowed to participate in a market activity, are two entirely different things. The law should be reactive. We shouldn't be denying people their liberty as a preemptive measure to stop crime.
>>fraudsters / unregulated securities
I just noticed this conflation. An unregulated security is a security that has not been approved by some gatekeeper. This is totally different from fraud, and these two shouldn't be put in the same category.
>They talked to me about it and I made them promise not to do so, and to always check with me before investing in any cryptocurrency. That's a bottom up adaptation that makes a couple individuals safer. Sure the government could have just banned them from investing in Ripple, but that's a crude (and Big-Brother-ish) solution that's going to have untold numbers of unintended consequences.
Your example is actually a perfect demonstration of how regulation could help. What if, instead of these older people having to happen to personally know someone knowledgeable about crypto like yourself, or knowing how to find one and not get duped in some forum, there were regulations requiring public disclosure of various information regarding cryptocurrencies and their backers? You know, like we already have for securities? Then these older people could research this information and decide for themselves what to do, which seems to be what you advocate.
This is the problem with ideological zealotry: it renders you unable to conceive of anyone as not being an ideological zealot. "Allow everything" or "ban everything" aren't the only options, never have been, and in the real world aren't. It's frustrating to discuss these issue with True Believers because the response is inevitably "Oh, so we should just ban everything then?"
I'm not a "committed libertarian", even if I would be classified as a libertarian according to my views. Any ideological commitment is dangerous, whether that's to libertarianism, or anti-libertarian mixed-economics-ism.
You're trying to frame crypto-enthusists as hypocritical fair-weather libertarians that will change their mind just as soon as there's a scam or hack which affects them. Yet it never materializes. When exchanges get hacked you don't here "wahh let's get regulation". You hear "Don't keep money on exchanges".