Cleaning Up the Crypto Markets: A Job for 2018
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Scott Ryan is a credit analyst and avid follower of the cryptocurrency markets.
The following article is an exclusive contribution to CoinDesk’s 2017 in Review.
First things first: I’m quite fond of the Wild West environment in which we currently operate – the excitement and uncertainty are unparalleled by a night at the casino, let alone the current debt and equity markets.
And while the current environment is wrought with misinformation, pump-and-dump traders and scam coins, at the same time, it’s bursting at the seams with innovation, partnerships with blue-chip corporations and thought leaders of the modern era. Finding a treasure after sifting through so much garbage is exhilarating.
If there’s one thing I’ve learned in life, however, it’s that change is inevitable, but not always bad.
If we are to achieve the global recognition and acceptance we desire, this exuberance must be tamed, and regulation must be put in place.
There are serious issues with the way crypto asset news and research are disseminated.
I’ll focus on the market effect of a specific group (which I won’t name). Look at the ZenCash chart below from immediately before and after this publication recommended ZenCash in October.
As soon as this publication announced its recommendation of ZenCash, the price skyrocketed from roughly $10 to about $25. Did something fundamentally change about ZenCash that warranted such a dramatic spike in value? I think not.
Sure, ZenCash could be a great investment; however, that’s not the point. Did the staff of the publication load up on ZenCash just before the announcement? Did they proceed to dump their investment on blind followers? Without identity, regulation and disclosure requirements, there is no way to answer these questions.
Imagine if it were legal for equity research analysts to short stocks just before publishing a sell recommendation on behalf of a major investment bank, or if financial advisors could purchase a stock just before recommending it to their clients. Now that the aforementioned publication has a cult-like following, there is nothing to stop them from loading up on their “coin of the month” just before the announcement, and regardless of which coin they recommend, the following they’ve garnered will create a self-fulfilling prophecy.
What we need is unbiased, legitimate research published by intelligent, well-versed analysts who care solely about informing the community, and not about making a quick buck. The truth is that unbiased research is not possible without a third-party to regulate it.
As much as I’d like to trust the people I’ve met in telegram channels, they’re also experts at Photoshop, FUD (fear, uncertainty and doubt) and amplifying fake news. While I believe decentralization and trustless networks will displace many centralized institutions, unbiased research is impossible without regulators’ help.
I clearly support a more regulated crypto asset market, but there are many things I don’t like about the regulatory framework of traditional markets. I don’t like the definition of an accredited investor (as if being wealthy immediately makes you a more knowledgeable, responsible investor). I don’t like the ridiculous number of hoops one needs to jump through to raise money.
The current system for debt and equity investments is undoubtedly designed for the rich to get richer, with barriers to entry that sometimes are insurmountable.
What I propose is a happy medium, and the best way to achieve this is to be proactive.
We already have the means to give regulators much of what they require. Without shilling anything specific, we have identity management dapps to help with KYC, immutable blockchains to show all our purchases and automated contracts to create trust.
What we’re lacking, however, is the standardized infrastructure to bring it all together.
In the spirit of decentralization, as a community, let’s create our own framework, one that protects investors from thieves and pump-and-dumps, but also shatters the barrier between the rich and poor. We all should have the right to invest how we see fit, but also have the peace of mind knowing that criminals will face consequences.
No one wants to support terrorism, money laundering or other organized crime, and the best way to resolve this stigma is to attach our identity to our transactions. If we try to regulate ourselves before regulators intervene, perhaps blockchain technology won’t be just a technological advancement, but also a societal one.
There is a paradox at play when we think about our goal of mass adoption combined with our fear of regulation. It’s simply impossible to have one without the other.
We can’t have unbiased research or trustworthy exchanges without regulatory bodies to keep them honest. In the short term, yes, regulation will decrease liquidity and damage valuations.
But if the market can recover from a blanket ban of all exchanges and initial coin offerings in China, it can certainly recover from the institution of regulatory framework around identity and accountability.
So, let us take that one step back, but forget two steps forward: let’s go straight to the moon.
Regulation not your cup of tea? CoinDesk is accepting submissions to its 2017 in Review. Email email@example.com to learn more.
Double rainbow image via Shutterstock
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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.