The Folly of Crypto Regulation, by William Gudal

Crypto is a jungle. Let it stay a jungle and buyer (and seller) beware. From SLL contributor William Gudal:

In the wake of the FTX explosion there is a cascade of calls for new crypto regulation. I, on the other hand, recommend zero regulation of any kind, now or in the future. Crypto is not a financial asset (or an asset of any kind) and therefore requires no regulation. Further, it is incapable of meaningful regulation; it is like holding a beach ball underwater.

In my years of observing human nature I have concluded that individuals are overwhelmingly possessed by three archetypical and primal instincts: sex, consumption of food and water, and the desire to pass a law, a rule or a regulation. Humans love telling people what to do and what not to do. This applies not just at the national level but extends all the way down to local governments and to voluntary social organizations. Nothing must excite a Congressperson more than the moment another 1200 page legislative bill receives the final passing vote and is sent off to the Government Publishing Office. These new laws stack up like cordwood, hundreds of years of them, and remain forever like lichen on a stone, ready to confuse and thwart the efficiency of the next new good idea. The bill signing ceremony where the President hands out a multitude of pens to the dazzled onlookers must be pure euphoria.

In using the term crypto, against the wishes of the high cognoscenti, I am including the entire animal farm of digital assets, Bitcoin, Ethereum, stable coin, defi, altcoins, “exchanges”, NFTs. I do not include blockchain. Blockchain is simply a mechanism. In essence in each application it is a software program, somewhat like an Oracle database. If it is open source, it has no value. If it is proprietary it has value if it can be copyrighted and sold like Windows. Just as Acrobat per se is not a financial asset, neither is blockchain. Trying to claim that a Bitcoin token is blockchain is a non sequitur.

If you feel that the foregoing crypto digital entries are in fact real assets, go for it. Just don’t expect to bother anyone else or the government when your problem develops. If we all come to this understanding and recognize that crypto is a fun pastime equivalent to video gaming, then consequently there is no systemic risk to real commerce and finance. If you fancy the Smiling Ape NFT or the latest ”token” from the Grand Caymans, help yourself and enjoy. But just remember, big brother is using this silliness to lay the groundwork for a new sinister attack on money.

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