This Week's Great Debate: The Increasing Regulations of Cryptocurrency
The tide of regulation is rising on Crypto-land. More sectors of the U.S. Government are pushing through new declarations of oversight week by week. With the growing dissent of users publicly accusing exchanges of unethical practices, and Crypto's largest players applying for ETFs in the public markets, I hated to admit I knew it was coming.
I attempted to diffuse the public ridicule of Crypto exchanges on social media, warning impulsive posters of the consequences of giving leverage to the Federal government for intervention. It seemed nobody understood the irreversible damage of shifting power into the hand's of those who have much to lose by this truly free and private market. I was met with a shocking amount of traders so short sighted, they welcomed government regulation with open arms. "These crooks" (referring to the exchanges) needed regulation, they claimed.
Appallingly, the outcry began over a huge short position taken out on Stellar Coin that was accompanied by a DDos attack. Here's why I say "appalling": the Alt was soaring at 24 hr gains of nearly 350% at the time of the short position, which by the time the attacks were resolved had lowered this percentage back down to 100% gain. These traders felt that they should be compensated in full for funds lost due to the occurrence. They demanded refunds on their margin positions that were (and I really want to hammer this home) clearly taken out at OVER 100% GAINS on the daily.
Don't get me wrong, there were some rational thinkers out there that saw the insane entitlement among these individuals just as I did. The majority, however, seemed utterly clueless not only about investment strategy, but sadly about the underlying principles of crypto-currency in general.
Within 24 hours, I woke up to find two casually represented articles in my newsfeed, both on very low traffic niche Crypto news sites. The SEC had announced their intentions to place regulations on trading in the Crypto markets. Within thirty minutes, the second article: Congress had ALREADY drafted a bill forming a committee to investigate cryptocurrencies in response to the "Wanna Cry" ransomware attacks that had occurred less than 48 hours prior. Congress, a group that undoubtedly debates for at least 3 days to determine what bagels they'll serve at breakfast, had completed overnight a draft to be sent for review and added to the nearest bill.
Did we see any mention of these huge developments anywhere in the news? Of course not. In fact, the news stayed buried under the Comey vs Trump reality TV series for quite some time. As many of you may have seen, recent news has shown further advances in attempted regulatory actions like the enforcement of claiming all cryptocurrencies at borders of the United States.
So the discussion I'd like to have is this: what are your views on regulation? Is this a necessary evil to keep this market ethical? And furthermore, do you view the role of the SEC in the public markets as a protective entity or one that does little for retail traders but limit them?
Don't be afraid to sharply contrast my views. I can promise that I do not take matters of opinion personally. I'd like to find some common ground for those that are pro-regulation, as long as ideas are constructed rationally. Thanks for the read and..
Let the debate commence!
I have no time (yet) to respond in detail, but I see no reason why cyptocurrency exchanges should in principle be treated any different than regular exchanges when it comes to the 'exchange' part. That cryptocurrency is involved instead of beans or corn in principle makes no difference.
Of course the SEC will look into this because that is the job they got from the legislator.
For the avoidance of doubt, this does not mean that I agree or disagree with existing regulations themselves (whether as a whole or parts thereof). That is also a different matter. It is important to be clear on what exact element we are discussing in this respect.
Thanks for contributing! I think mainly I'm opposed to SEC regulations because they often limit the individual's ability to compete. They may institute a pattern day trading regulation, as they currently have in the stock market. This places a firm limit on the number of times an investor can buy and sell the same holding on the same day. If you engage in the buying and selling of a holding on the same day more than 4 times within a five day trading period, you get "flagged" as a pattern day trader. This then removes your ability to buy and sell any holding within the same day for a ban of 90 days. The second thing they may do is take away market making ability for individuals and instead designate that power only to the exchanges. The problem with this is that often brokerages can control price action by stacking the buys or sells in a concentrated area instead of spreading them out more evenly. They can sometimes create very large price gaps, causing a holding to hit a firm resistance on one price, which could then incite selling as individuals notice the bearish double or triple top trend. In reality the holding may have gained quite a bit volume in buys, but it won't be reflected in price action due to the market maker's power to set bids at the same price for many different holdings.
These kind of regulations are instituted under the guise of "protecting the plebians from themselves." So smart investors that don't over trade on margins and have studied TA rigorously to make calculated day trades on pre-determined criteria get punished because some people are foolish with their money, do no DD, then complain and get outraged when their un-calculated risk taking approach crumbles down on top of them. Regardless of whether it is helpful to save people from their own lack of self control or not, the unfortunate side effect is that the big money has an even bigger edge over individual investors. It's always going to be advantageous for whales in any free market, the last thing I want is the government stepping in to take my competitive edge away and delegate those decisions that will be made with my money to the financial institutions.