Time to Accelerate the Growth of Cryptocurrency

Following the US Presidential Election, an article on CoinDesk caught my attention, where EY professional Paul Brody argued that the key to blockchain's success lies in the intense competition it fosters. Brody compared blockchain to the rise of Voice over IP, stating that the internet has come to dominate communications due to its affordability, widespread availability, and intense competition among internet communication services. I found this comparison inspiring, but I believe Brody overlooked a crucial aspect of the equation. The founder of Brogan Law, Aaron Brogan, notes that the entire cycle of deregulation, monopoly breakup, reconfiguration, and shift to internet and mobile took place over 20 years for VoIP. However, I think deregulation is the key issue of our time. Since January 2021, SEC Chair Gary Gensler has implemented policies to stifle the development of cryptocurrency. With Donald Trump in office, the industry can expect a new SEC chair and new policies, but this will not be the end of the story. The truth is, deregulation is not something that happens on its own, and cryptocurrency's value depends largely on achieving it. The next four years will provide an opportunity to do so, but we should expect a battle. The US capital markets have been regulated by essentially one regime for nearly a hundred years, with the SEC empowered to implement certain requirements for companies seeking to raise public capital. This regime includes the obligation to publish a prospectus, ongoing reporting requirements, and the requirement that certain financial intermediaries be registered as broker-dealers or national security exchanges. While each aspect of this regime may be justifiable consumer protection, the result is that accessing public capital markets is prohibitively expensive for all but the largest businesses. The accounting firm PWC estimates that the average cost of even the smallest public offerings is between $2 and $12 million. Ongoing compliance is similarly expensive, with the SEC recognizing that the disclosure requirements place a disproportionate burden on smaller reporting companies. There are exemptions that allow the sale of so-called exempt securities, including Reg D, Reg A, and Reg CF, but these regimes seriously limit secondary market liquidity, which is a crucial component for attracting primary investment. The result is a drag on the real economy, with the management consulting firm McKinsey & Co. identifying access to working capital financing as a limiting factor in the productivity of American small businesses. Cryptocurrency was a technological development that created 'regulatory arbitrage,' allowing for the creation of fresh capital markets that exploded almost immediately. In 2018 alone, cryptocurrency firms raised $20.3 billion in token offerings, compared to the $500 million raised in Reg CF offerings in 2023. Although many companies that conducted initial coin offerings in 2017 and 2018 failed, some projects funded during this boom subsequently experienced sustained increases in value. Now, with Donald Trump in office, the industry can expect a new SEC chair and new policies. However, this will not be the end of the story, as the SEC will likely resist any attempts to reduce its authority. The industry has won a chance to push for deregulation and ensure that whoever comes next at the SEC cannot disempower the industry again. To achieve this, the industry must continue to expand retail adoption to gain enough consumer support and work with allies in Washington to implement a legislative solution to permanently establish cryptocurrency as a regulatory third way.