"Get out of Crypto now" - former SEC Lawyer
A massive Tweet from an ex-SEC Lawyer:
Get out of crypto platforms now, I can't say it any plainer. Having worked as an attorney in the SEC Enforcement Division for almost 20 years (including 11 years as Chief of the SEC Office of Internet Enforcement), I believe that we now know for certain that crypto trading platforms are under a U.S. regulatory/law enforcement siege which has only just begun.
And before you chop my head off with vitriol, ad hominems and OK Boomerisms, please allow me to explain the situation with only facts and research.
And before you label me a bureaucratic, washed-up SEC shill, please bear in mind that while I may indeed be washed up (!), I am typically an outspoken and dedicated SEC critic (see, e.g., https://twitter.com/JohnReedStark/status/1656774452388962305?s=20). I also have no stake of any kind in the cryptoverse. I am 100% objective, independent and neutral. Just seeking truth, always.
My take is that the SEC is spot-on with their crypto-related enforcement efforts. No matter what the carnival barkers promise, it is axiomatic that crypto trading platforms are high-risk, perilous and inherently unsafe. Please read on to understand my reasoning.
Why A Lack of SEC Registration Matters
U.S. SEC registration of financial firms: (1) mandates that investor funds and securities be handled appropriately without conflicts of interest; (2) ensures that investors understand the risks involved in purchasing the often illiquid and speculative securities that are traded on a cryptocurrency platform; (3) makes buyers aware of the last prices on securities traded over a cryptocurrency platform; and (4) provides adequate disclosures regarding their trading policies, practices and procedures.
Overall, entities providing financial services must carefully handle access to, and control of, investor funds, and provide all users with adequate protection and fortification.
With traditional SEC-registered financial firms, the SEC has unlimited and instantaneous visibility into every aspect of operations. With crypto trading platforms, the SEC lacks any sort of oversight and access — and has scant ability to detect, investigate and deter fraudulent conduct. As a result, the crypto marketplace operates without much supervision, lacking:
--The hallmarks of the traditional transparent surveillance program of a financial firm like an SEC-registered broker-dealer or investment adviser, so the SEC cannot analyze or verify market trading and clearing activity, customer identities and other critical data for risk and fraud;
--SEC and/or Financial Industry Regulatory Authority licensure of individuals involved in crypto trading, operation, promotion, etc., so the SEC cannot detect individual misconduct and enforce violations; -Traditional accountability structures and fiduciaries of financial firms, so the SEC cannot ensure that every customer's interest is protected and held sacrosanct; and
--The compliance systems, personnel and infrastructure, so the SEC cannot know where crypto came from or who holds most of it; and -The verification and investigatory routine and for cause SEC or FINRA examinations, inspections and audits, so the SEC and FINRA cannot patrol, supervise or verify critical customer protections and compliance mechanisms.
What the Crypto Regulatory Vacuum Means
For customers of digital asset platforms like most so-called crypto exchanges, there is not just a gap in customer protections, but a chasm. For example unlike SEC-registered financial firms, crypto trading platforms have:
-No record-keeping and archiving requirements with respect to operations, communications, trading or any other aspect of business;
-No requirements regarding the pricing or order flow of transactions or the use internal platforms and payment systems by employees;
-No reason to abide by U.S. statutes and rules prohibiting manipulation, insider trading, trading ahead of customers and other fraudulent behavior by customers or employees;
-No mandated cybersecurity requirements or standards to combat online attackers and protect customer privacy;
-No requirement to establish mandated training or code of conduct requirements;
-No obligation to have in place internal compliance, customer service and whistleblower teams to address and archive customer complaints;
-No requirement to reverse charges if any dispute or problem arises;
-No mandated robust and documented processes for the redress and management of customer complaints (N.B. that and even if there was a formal complaint filing structure in a digital asset trading platform, the pseudo-anonymous nature of virtual currencies, ease of cross-border and interstate transport, and the lack of a formal banking edifice creates enormous challenges for law enforcement to investigate and apprehend any individuals who use cryptocurrencies for illegal activities);
-No obligation to follow publicly disseminated national best bid and offer and other related best execution requirements;
-No minimum financial standards for operation, liquidity, and net capital; -No U.S. governmental team of objective auditors and examiners to inspect and scrutinize the fairness, execution and transparency of transactions;
-No requirement to ensure consistency of trading operations i.e. that the trading protocols used, which determine how orders interact and execute, and access to a platform's trading services, are the same for all users; and
-No obligation to design ethics and compliance codes for Wall Street entities (regardless of registration status) which would ban their employees from investing in cryptocurrency or NFT investments based on the same arguments as the ban of initial public offerings and options – i.e. that they are too risky and may tempt an employee to steal if not prohibitive.
It's all straight-forward and commonsensical. SEC registration establishes critical requirements that protect investors from individual risk and protect capital markets from global systemic risk. The requirements also make U.S. markets among the safest, most robust, most vibrant and most desirable marketplaces in the world.
Thanks for reading. With my blessing (and nothing but love for you), please feel free to launch the hate. Full Stop.
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"The amateur sleuths who helped to bring down Sam Bankman-Fried"
Overall an interesting insight into two people who were trying to highlight some of the things coming to light as cryptocurrency goes through this bust period.
But when he started to point out that, in crypto markets, the familiar pattern of the Ponzi scheme – a kind of fraudulent investment that only pays out as long as new investors are joining – could be seen again and again, no one seemed to want to know. Block’s posts on Twitter were studiously ignored by a world caught up in the great speculative investment boom of 2020 and 2021, when the stimulus programmes governments deployed during the pandemic created a huge bubble in asset prices. Novice investors piled into anything that offered enough risk – bankrupt companies, blank-cheque vehicles, crypto, NFTs (digital ownership tokens) – and in doing so sent their prices, as the saying goes, to the moon.
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Verifiable work & Identity in the coming era
I was thinking this morning about how the progression of AI as being "good enough" is going to force a change on homework that is AI doable. Math, writing, computer science, all of these areas are ones we're seeing AI become capable enough to solve in a way which would make it hard to identify whether the student did it on their own, or with aid.
I noted two posts by a friend of mine on Mastodon in yesterday's favs, included again below:
On the one hand, I believe many common examples of homework to be remote busywork. At best, misguided as to the efficacy, and at worst, just work to be able to feel the student put in effort. Yes, there were definitely examples that I felt helped me understand and grow in my abilities in different academic areas, but they were exceptions. As a layman with no evidence to back this up, my feeling is that there is a sizable dip in effectiveness where the earliest years of schooling benefit from the added practice, and that in the later years of schooling it has similar levels of benefit as projects become more complex and require more than the time allotted in school. Additionally, team projects which require collaboration were good practice for communicating with others, rudimentary project management concepts, and also understanding how others work (or often didn't work.)
As Adam noted, there will likely be a growing importance in these sorts of projects to provide additional resources, proof of work, research, notes, as means of helping show your process and work, and as another piece of verification for work completed by you and not an AI assistant.
Additionally, in this same vein of verification against AI, comes the concerns over deepfakes, or more subtly the impersonation of someone in text form on social media or online. How do we know our friend really said those things when AI can generate a good-enough doppelgänger in many cases?
One idea I saw floated, though I didn't flag it so it is now lost to me, was that online identity verification could be an example of a blockchain style public ledger for verification. Obviously it has numerous security, privacy, and technology concerns; but it did strike me as perhaps the most compelling use-case for blockchain style technology that I have heard in a while. I recognize that I am not well informed enough to know if it is indeed viable; but it at least got my gears going.
Anyways, AI and this new era is definitely on my mind and likely will continue to be.
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Ethereum finally moving away from mining
It's been in talks for years now, glad we're finally reaching this point. Of any crypto, Ethereum is the one I believe is most likely to prove long term viability. I'm not convinced of it, but if I had to pick one to win it all - that's the one.
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Naval Rakivant interviews Vitalik Buterin, creator of Ethereum
I listen to the Tim podcast far less frequently than I used to, but I did turn on this episode as I was curious to hear Vitalik and learn more about Ethereum.
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