The biggest threat to crypto has always been a brutal regulatory crackdown.
The industry has never been in a weaker position than now. Some rapid, proactive moves are needed to survive.
Proposal of a User Bill of Rights and several remedial steps toward self-regulation of the crypto markets are needed.
Having lived through the 2016 and 2019 bear markets, the crypto industry drawdowns don’t usually make traders queasy, but this time it’s different.
They aren’t worried about their portfolios but are acutely aware that the world is rubbernecked at the unwinding of a $40 billion algorithmic stablecoin protocol.
Weeks after a $100 million hack / $200 million hack / $600 million hack, not to mention a tax deadline that likely put thousands of speculators net underwater (if not bankrupt) as crypto, NFT, and tech markets, crashed and dropped portfolio holdings below many capital gains liabilities.
The space could get very bad attention from policymakers as a result.
The CBDC shillers, Citizen Protectors, and regulatory henchmen have an unprecedented amount of ammunition to fire at crypto now:
a) The US economy looks for a convenient scapegoat as it’s threatened by a possible recession,
b) The political winds shift away from some of the crypto allies and in favor of some of the enemies as midterms approach
c) Crypto’s biggest boosters are financially wounded and burnt out from a rollercoaster market cycle.
The time has come to be proactive about basic self-regulatory and consumer protection measures, while aggressively defending basic crypto user rights.
Crypto’s risks and shortcomings can be acknowledged without conceding an inch on the right to code new protocols, self-custody assets, or transact on p2p networks.
An earnest discussion of user rights has been largely absent from the institution-led policy discussions so far. That’s a shame because there are three popular, populist arguments for crypto that hold regardless of market conditions.
Trust in institutions is declining, and crypto networks present a credible alternative to centralized monopolies.
Progress is messy, but customers have a right to explore alternatives. There are also Constitutional rights to financial privacy and peer-to-peer transactions. The right to own personal wallets is inviolable.
Community-owned protocols offer better economics, upside, and user rights than tech monopolies, even if they come with new risks that reflect their early stage.
Crypto institutions; the exchanges and VCs mostly may already be pushing these arguments with policymakers, even if they use slightly different words.
But it’s worrying that these words sound empty if they aren’t supplemented by a groundswell of user feedback to policymakers.
A User Bill of Rights for Crypto
Congress regularly passes resolutions that are distinct from bills. Sometimes it’s easier to pass these since they don’t typically have legal significance.
Sometimes they are just about constituent issues or expressions of support for random causes.
The original Bill of Rights was adopted as a joint resolution of Congress.
A lawmaker’s expression of support for a crypto resolution would be one way to signal that they are pro-crypto, like the simple pledge above, and it will show which, if any, members are willing to co-sponsor it.
A Digital Asset User Bill of Rights also has better odds of symbolic passage than a comprehensive crypto bill this session though the latter would be an incredible achievement.
Crypto Data Vendors
The fact that blockchains are public data ledgers, and most protocols operate in the open with fully open-source code and decentralized contributors present an interesting dilemma when considering information asymmetries and disclosure rules.
The data is wide open to public inspection, but there’s no one to standardize its format or delivery.
An individual analyst can scrub the data directly or cobble information together from a variety of public sources.
Messari, Nansen, Dune Analytics, Coin Metrics, Flipside, AmberData, Token Terminal, and others all provide excellent resources for crypto market participants.
Remedial Self-Regulatory Efforts
Policymakers should be patient and exercise restraint when it comes to crypto, but that doesn’t mean that they will.
The industry is furthest along with a model disclosure framework for SEC compliance thanks in large part to Commissioner Hester Peirce.
If the SEC wants to foster a more effective disclosure and compliance environment for token issuers, doubling down on a team of lawyers dedicated to suing us isn’t constructive, particularly when many of the cases they bring involve settlements against entities who committed no fraud.
Create Disclosure Rules for Exchanges and Institutional Token Holders:
The publicly available nature of blockchain transactions often obviates the need for many centralized government disclosure structures.
If a large holder or whale seems to be buying, selling, or attempting to manipulate the markets, dedicated monitors of block explorers will often post this information directly to Twitter.
But the proliferation of privacy-preserving technology means that this won’t always be the case.
Adopt a Standard User Risk Waiver and Invest in Education Centers:
The onboarding process for new users to centralized crypto services and DeFi protocols alike should include plain English risk disclosures and links to independent, community aggregated reference materials.