The Evolution of Regulation

In this latest episode of CRYPTO 101 Podcast, Matthew had a chance to discuss crypto regulation through the lens of history with with Mike Greenacre and Jamie Khurshid.

Who are Mike Greenacre and Jamie Khurshid?

Jamie grew up in the Middle East and was sent to a UK boarding school at age 8. In 1988 he moved to New York City and worked on the trade floor on Madison Avenue. Soon after this he headed back to London to head up the Equities Project Office for the Credit Suisse Private Client’s Technology Business. Growing tired of banking he developed an interest in Fintech.

Mike was born and raised in England but has spent much time abroad in his professional life. In his earlier work days he was a contractor working for oil companies searching for oil and gas deposits. He ended up in Switzerland off the back of this work but while there he was exposed to the trading environment and commodity investing.

“You know three things in life: Who your mother is, who your god is and what gold is.” — Mike Greenacre —

What is it about Regulation?

It’s first important to point out something that Mike expressed quite well.  

“Regulators are very important to us, they are there for consumer protection. They are not in the business of helping banks make money. They are there to protect consumers from illegal practice.”— Jamie Khurshid —

This is the mandate of regulatory bodies. They are there to protect consumers and investors, not the issuers and controllers. This might not always be the case in practice but the desired outcome is a safe and amicable trading place for all investors. 

A (Very) Brief History of The Dodd-Frank Act of 2010

The most recent regulatory milestone that the west has lived through was the 2010 response to the global financial crisis in 2008. This regulatory response has become known as the Dodd-Frank Wall Street Reform and Consumer Protection Act. There are four main takeaways that Jamie highlights in the podcast. 

  1. Dodd Frank wanted to create financial stability in a climate where there are institutions that are “too big to fail”.  
  2. Securing consumer protection in Mortgage lending practices by preventing brokers from acquiring higher fees for higher rates
  3. The Volcker Rule is what prevents banks from proprietary trading. It separates the investment and commercial function of banks.
  4. Before 2010, Credit Default Swaps and subprime lendings were being traded Over-the-Counter. Dodd-Frank put an end to this and required this trading to take place on regulated exchanges. 

A Few Words on Crypto Regulation

The cryptocurrency markets are very much the WIld West. There are currently VERY little regulatory protections in place that can protect people from investing their retirement fund, college tuition or rent money into a cryptocurrency. While this may be a Libertarian’s dream it can and has destroyed people. And the fact is that people can’t destroy their lives so easily in traditional markets because their are regulations in place that serve to protect average investors from making decisions that aren't in their best interest.

“When you are in the Wild West, you should be playing with the holiday money, not the rent money.”— Mike Greenacre —

So We just need some Dodd-Frank-Style Legislation for the Crypto Markets?

Both Jamie and Mike disagree with this simplistic approach. Crypto is a new emergent market. Jamie feels like the markets are currently heading in the wrong direction and Mike appeals to the bumpy history of Gold regulation to argue that slapping cookie-cutter regulations from other sectors on top of crypto markets is not a good idea.

 “Coming up with a voluntary regulatory framework that would introduce a certain proportionate transparency and provide  advisory information — a process that helps us get to the consumer protection that is already there. We want to have experts that understand what the instruments are and allow an appropriate level of regulation and transparency around the instruments themselves that help people understand what the risks are.”—Jamie Khurshid —

Back to the ETF

At the moment the passing of an ETF by the SEC would simply allow an additional regulated means for consumers to purchase and trade in Bitcoin. This has pros and cons for many, many reasons — some of which we covered in this write up. 

However, the ETF isn't a comprehensive regulatory solution to the Wild West problem in crypto. It is just one small part of a regulated future for the markets that seem to be moving in the direction of consumer protection and regulation that can go a long way to helping the average consumer protect themselves from making terrible decisions but can also go against the grain of the ethos of the cryptocurrency movement sparked by the cypher punks — that of self-autonomy and control over one’s decisions and assets.

Be sure to check out the episode to broaden your knowledge on market regulation and how it is affecting the crypto space currently.