Powers On… The battle for digital asset supremacy and the consequences of U.S. capitulation

Powers On… The battle for digital asset supremacy and the consequences of U.S. capitulation 1

Powers On… The battle for digital asset supremacy and the consequences of U.S. capitulation 2



Powers on… is a new monthly opinion column by Mark Powers, who has devoted much of his 40-year legal career to complex securities litigation in the United States after working for the U.S. Securities and Exchange Commission. He is currently an associate professor at Florida International University School of Law, where he teaches blockchain, cryptography and regulatory considerations.

Dear Readers: This is my first review for Cointelegraph since retiring a month ago after a 40-year career in a law firm (and before that at the SEC). This is an interesting opportunity for me, and I hope for you as well. The barriers to politically correct and business-sensitive communications are a thing of the past, and I no longer have to “clarify” or worry about my words offending regulators, politicians, colleagues or clients of my firm.

You will hear my personal and (mostly) objective opinion, which will be free of any material conflict. I don’t expect you to do that. I just want to be read and perhaps start a dialogue to influence the actions of others – whether regulators, corporations or legislators – to promote and adopt blockchain technology, examples of its use for businesses and the public in the banking and non-banking sectors, and the safe and responsible regulation of cryptocurrency.

My first column is about how I see the United States relative to the rest of the world in terms of the placement, acceptance and adoption of block strings, bitcoins and other cryptographic currencies.

I begin this important topic because I am concerned that the United States, its institutions and regulators, by their acts and omissions, intentional or otherwise, are undermining the development, use and availability of digital goods to the citizens of that country. And this could be to the detriment of all of us.

These actions include generally hostile Congressional hearings on Blockchain and Diem, née Libra on Facebook, as well as SEC enforcement actions that continue to target ICOs beginning in 2017 and 2018; and the FinCEN rules proposed the week before Christmas that seek to require regulated financial institutions and MSBs to disclose virtually all cryptocurrency transactions and customer and counterparty information of institutions with non-hosted digital portfolios.

The only positives were the thoughtful comments and speeches of Securities and Exchange Commission Commissioner Hester Peirce and the actions of Brian Brooks, the recently deceased acting money regulator, to allow financial institutions to store digital assets and use the chain of custody for financial transactions.

What most U.S. policymakers and regulators do not understand is that if we remove the promotion of blockchain and the use of cryptocurrency for capital formation, there are other countries and jurisdictions that will welcome and accept it. If we do not adapt, there is a real danger that the United States will see this new technology “owned” by other countries, some of which may be opponents and competitors.

In China, there is the People’s Bank of China’s digital currency and electronic payments project. This pilot project, which uses digital currency and wallets issued by China’s central bank, reportedly processed more than three million transactions last November, with a total value of more than $160 million.

In Switzerland, not only is the use of Blockchain encouraged, but the city of Zug has set up Blockchain for public and private use.

In Sweden and Georgia, land registries are on the rise.

Raising capital is the lifeblood of many developers, entrepreneurs and multi-site companies. It is essential to the health and expansion of projects in the production chain and their communities. The mechanism of choice is often the provision of digital tokens. However, many policymakers and regulators in the U.S. have a short-sighted and compartmentalized view that promotes the idea that everything that happens in chain transactions must be accepted or guided by the views of U.S. policymakers.

But do you know what? As many regular readers of this publication or investors in Bitcoin and other cryptocurrents know, financial transactions take place every day all over the world via the Internet and various blockchains, without government oversight or approval. It doesn’t matter what Congress, the SEC, the CFTC, FinCEN and the Federal Reserve say or want. These currencies represent dynamic organizations and businesses that live vibrant lives beyond these shores.

At the time of this writing, CoinMarketCap tracks thousands of cryptocurrences on its platform. These tokens are traded on dozens of exchanges, many of which are not registered or regulated in the United States. And while U.S. exchanges generally trade Monday through Friday from 9:30 a.m. to 4 p.m. (Eastern time), tokens never stop. They don’t know the difference between weekdays and weekends. They are bought, accumulated, sold and shared by sophisticated and less sophisticated investors and traders around the world.

The United States has tried and may continue to try to stop this with new laws and regulations: but this is an exercise in futility. The cat is not only out of the bag, it is feasting at the table.

By attempting to suppress innovation, the United States will lose the global dominance of the U.S. dollar and the power and influence of its political and economic institutions. Last month, Acting Superintendent Brooks gave a parting word and sound advice to the new Biden administration in T-Hill: “If the United States focuses more on the risks than the benefits [of encryption and decentralized finance], we will fall behind in rebuilding the global financial system.

So where does this leave us, with the new Biden administration and Congress? What can we expect and what must Americans do to ensure that the United States remains the dominant player in capital formation, trade and global affairs?

A quick look at Congress is hardly encouraging. On January 15, House Speaker Nancy Pelosi appointed Representatives Alexandria Ocasio-Cortez and Rasheed Tlaib to the important House Financial Services Committee, chaired by Representative Maxine Waters. Waters showed no apparent friendliness or deep understanding of block trades, digital currencies and their useful applications. Ocasio-Cortez and Tlaib will likely have other issues as priorities to address. In the U.S. Senate, Senators Mike Crapo and Sherrod Brown of the Senate Banking Committee have spoken out in favor of promoting cryptocurrency. Although Brown at least welcomed the Federal Reserve’s digital currency and the fact that Americans can have digital wallets as part of the support bill.

The SEC will likely be led by Gary Gensler, a former Goldman Sachs partner and chairman of the CFTC. What will happen is less clear. Gensler was a professor at the Massachusetts Institute of Technology (MIT) and taught courses on blockchain, banking and cryptocurrency at the business school. Reviewing some of his courses and teaching materials, it is clear that he has a comprehensive and useful understanding of the subject matter and issues arising from the emerging policy and regulatory environment. A year ago, on December 15, 2019, he also wrote an opinion piece for CoinDesk titled “Even when a thousand projects fail, the blockchain is always a catalyst for change.”

Gensler’s writings end with some thoughts of encouragement:

“While there are literally thousands of projects to implement, it continues to intrigue me that Satoshi’s innovations can drive change – directly or indirectly, as a catalyst. The ability to reduce the cost of verification and interconnectivity is worth the economic profitability and cost of data protection, and also promotes economic integration.” In addition, shared applications of chains of blocks can help implement multi-party network solutions in areas that have traditionally been fragmented or resistant to change.”

Elsewhere in the article, however, he points out that “the question remains, which applications of cryptocurrency and the blockchain will be more than a catalyst for change? Apart from the fact that Bitcoin offers rare digital speculative value and niche applications in digital trading, gaming and betting, what applications will be sustainable for cryptocurrency as a new form of private money?

Gensler also had a reputation for being an aggressive regulator. Although he accomplished much at the CFTC in terms of enforcing Dodd-Frank mandates, including the establishment of the exchange, he caused a stir at other regulators and abroad. He has also taken major financial institutions to court for enforcement actions. So it is unclear where he will set his priorities as chairman of the SEC. But one thing seems clear. As a proponent of regulation and enforcement, one would expect Gensler to try to regulate the supply chain ecosystem as much as his fellow commissioners, the courts and Congress will allow him to.

In my opinion, over-regulation is not good for blockchain, its acceptance and widespread adoption. The same goes for litigation regulation, a term coined years ago in the title of a book by former SEC Commissioner Roberta Carmel. Meaningful and thoughtful regulation is needed.

Yes, I recognize and accept that investor protection is important. But the central element in the development and philosophy of supply chain technology is to enable all people – sophisticated or not, banker or not, rich or poor – to interact with each other, to meet as equals, without interference from governments or other third parties.

I disagree with the philosophical belief of some regulators and congressmen that most retirees are just idiots and will see their savings ruined by cryptocurrency tricks involving stock exchanges and money issuers. We must not pretend that in order to protect the few, we must over-regulate and kill innovation in this emerging technology and industry and become the enemy of the many. Smart regulations and laws that stop crime, protect investors and businesses, and encourage better use of production line technology seem perfectly appropriate here.

In any event, education and disclosure are two important features of the federal securities laws and the best way to prevent fraud. Don’t prohibit the behavior entirely or make it harder to enforce.

It will be interesting to see how things develop over the next year. Are we moving toward a coherent and reasonable regulatory framework for the industry? Or toward a stifling environment that encourages innovation and economic growth abroad?

I know what I’m hoping for.

Relevant news

Be the first to comment

Leave a Reply

%d bloggers like this: