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Summary: I’m talking about the mental game of investing, especially as it applies to the crypto market. Subscribe here and follow me for weekly updates.
The crypto industry is living a lie.
Most tokens are really securities.
The crypto industry would have you believe that most of the tokens actually exist no securities. This is the Big Lie.
Today I’m going to explain how (and why) this Big Shit came to be, and how we’re ushering in a new era of crypto honesty. In the end, I hope you’ll see The Big Lie is simple and clear, and how you can help us move toward honesty. (It takes two minutes.)
Why Most Tokens Are Securities
If you recently joined us, questions about whether the token is a security or not is the heart of the crypto industry. Everything revolves around it.
Simply put, think of securities like company stock: like buying APPL stock to invest in Apple. Companies issue these shares to raise money, then they use the money to grow their business.
Obviously, this is what happens in crypto: some whiz kid gets an idea for a new product, they create a new token and sell it to investors, then live on the money while building the product into something great (or not). ).
It’s so obvious I don’t even have to say it: most of the crypto entrepreneurs sell tokens to investors to fund business.
It may not be a business in the traditional sense (i.e., it may not be a corporation), but the mechanism is the same.
Sell tokens. Collecting money. Build a business.
There is nothing morally wrong with this. As long as the intentions are good (and most entrepreneurs I meet have good intentions), it’s creating value for the world, in the form of a new product or service. In America, we applaud the small business owner.
But legitimate, that’s another matter. Securities are, of course, regulated by the SEC, the body charged with protecting investors (which, frankly, is an impossible task, since many investors do not want to to be protected).
Creating a small business is easy. But raising money from investors, under current legislation, is difficult. Very difficult.
To raise money from the general public in an Initial Public Offering can cost over $100 million: it’s not a start for a startup. There are other vehicles such as Regulation A which allow employers to collect smaller amounts, but they are still complicated and expensive.
The reality is that You have to raise money just to collect money.
This creates a Catch-22: you need some money just to hire a legal team and place an offer, then more money doing all the marketing and promotion of your Reg A offer. Meanwhile, you’re trying to build a product, find the right market, and build a business?
For most entrepreneurs, this system is not working.
So when a blockchain based token appeared it was a revelation. Here is a way to raise money fast, so you can have room to build the product and see if it works.
Unlike the legal route, token generation is just a few lines of code. Crypto makes it easy to receive money from investors, and start making it work. This is what fueled the ICO boom of 2017, and every blockchain boom since.
The problem is that under current law, most of the “tokens” are actually “unlisted securities”.
This is what the SEC’s Gary Gensler had to say, but the crypto industry doesn’t like it. So the industry has focused its massive brainpower on finding ways to create tokens no securities … and thus started the Big Lie.
“Most” Doesn’t Mean “All”
When we say “most tokens are securities,” please remember that “most” does not mean “all”.
This is where the SEC fell.
To be clear: some tokens are not legally securities. Our BMJ Rewards Token, for example, is not used to raise money — it is a loyalty token for our Premium subscribers, just like any other rewards program.
Similarly, it’s hard to argue that Starbucks’ new coffee collectible is securities, or a new NFT avatar on Reddit. This token drives businessbut they don’t securities. Big difference.
But if you have raised money to build a business, pass all four branches Howey Test, you have sold unregistered securities. Arguing otherwise is a Big Lie.
The latest form of Big Lie is the “decentralized governance token”: the thinking is that if a crypto project is owned and managed by people, no one is legally responsible. The SEC has no one to sue.
As I’ve said many times, this is an experiment doomed to failure. The beauty of great companies is that they are run by great managers and leaders. (Can you imagine if the public were running Apple?)
The Crypto Project found that “token decentralized governance” was a mess, because most token holders were a) too busy to get involved and/or b) lacked the technical know-how to make a meaningful contribution.
There are many other forms of Big Lies, usually rhyming with “IPO.” (ICO, IDO, IEO, etc.) But they all involve raising money, acquiring tokens that function like stocks, and keeping an eye on the ticker price that looks exactly like a stock exchange:
The path to crypto honesty starts with three principles:
- Most of the tokens are unlisted securities;
- To circumvent securities laws;
- Because these laws don’t work.
Why Securities Law Doesn’t Work
I just watched the four-part Netflix series MADOFF: The Monster of Wall Street about Bernie Madoff’s Ponzi scheme that scams investors from $65 billion. The documentary details the SEC’s failure to find fraud, even when they were told so many times.
The law that’s supposed to protect investors from Bernie Madoff? The law doesn’t work.
America was founded on a principle of hard work and entrepreneurship: the “pioneering spirit.” But securities laws, as we just discussed, make fundraising impractical for most entrepreneurs and startups. That the law doesn’t work.
The SEC would say that the securities laws, most of which were written in the 1930s, have served us quite well. But there have been many updates to the original laws since then, because, they just don’t work.
The laws themselves weren’t written by the SEC; laws are written by Congress. (The SEC just enacted it.) For better legislation, we have to have an act from Congress.
Better legislation would allow entrepreneurs and startups to raise funds by issuing tokens to the public – perhaps up to a modest limit (say, $100,000). They can then use these tokens to bootstrap the network, and build something useful or great.
What’s wrong with that?
What people want is the ability to use tokens for fundraising. That’s the big and obvious elephant in the room. I believe we can do this, and while protecting investors.
The laws don’t work: they are too restrictive and too expensive for small companies and entrepreneurs to follow. Just look at the explosion of token-based projects since 2017: it should be the proof you need.
People want to create companies, build businesses. There is a huge untapped potential for small business creativity and entrepreneurial talent. Better laws mean an explosion of great people building valuable products and services, creating jobs and wealth for the next generation.
Today, the boom is tucked away in ancient securities laws.
The good news is, laws are human creations, and humans can change them. Instead of circling around Big Lie, let’s do something radical: let’s start telling the truth.
If you are a US citizen, write your Senator. You can copy and paste this form letter:
Dear Senator [NAME],
Our current securities laws do not work.
As a crypto investor, I encourage you to work with your fellow Senators to find better laws to regulate digital assets, so that honest investors like myself don’t feel like criminals for investing in bitcoin, Ethereum, and other tokens.
I believe in the power of this technology to change the world, and I believe the US should lead the world in finding ways to protect investors while pushing crypto to thrive. Both are possible.
Please work to write better securities laws that allow crypto entrepreneurs to innovate, while allowing crypto investors to participate.
Truly,
[YOUR NAME HERE]
Let’s be honest: this is exactly what we wanted. Let’s go out and say it.
The worst thing they can say is no. But the best they can say is YES.
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