With the pending release of Episode VIII – The Last Jedi, I’m joining Tom Fox in tying compliance and the Star Wars franchise together in some posts this week. Star Wars is about the rise of the evil galactic empire and the rebels who fight against it. I think some Bitcoin advocates are trying to be the rebels who portray the the Federal Reserve as the evil Galactic Empire. The battle is for freedom of money.
“This is a fantastic fundamental hedge and store of value against autocratic regimes and banking infrastructure that we know is corrosive to how the world needs to work properly,” said Chamath Palihapitiya, the founder of Social Capital and an early Bitcoin investor. “You cannot have central banks infinitely printing currency.”
In response to that, I give you this picture of the Treasury Secretary showing a new sheet of money to his wife dressed in Darth Vader garb. (Add a helmet and it’s complete)
Of course the Treasury is not the Federal Reserve and this printed money is not the same as the Federal Reserve buying bonds with money pulled out of thin air. Since we have entered a post-factual world in Washington, I’m not sure we need to let facts get in the way of a great picture.
The underlying technology of Bitcoin, blockchain, is a brilliant shared ledger. It has the ability to replace some proprietary databases of transactional information. I’m less interest in Bitcoin itself. Digital currency moves control of the currency from the central banks to computer servers. While currency can be inflated be the central banks, Bitcoin is limited to a slow creation on the servers running blockchain.
As a naysayer, I failed to see the rise of Bitcoin. If I had a bought a few bitcoins when I first looked down my nose at it, I would have made a pile of cash.
The Federal Reserve, at the heart of the Galactic Empire, has pushed Bitcoin aside. Janet Yellen, the current Chair of the Board of Governors of the Federal Reserve System on Wednesday called Bitcoin a “highly speculative asset” and “not a stable source of value”, and “it doesn’t constitute legal tender.” In response, Bitcoin did not back down and the exchange rate stayed stable. The empire would have to find other ways to attack cryptocurrency.
The rebellion has grown from Bitcoin to other cryptocurrencies. They are launching their attacks in Initial Coin Offerings. No initial coin offerings have been registered with the Securities and Exchange Commission as the sale of securities. They are operating outside the oversight of the SEC, failing to give purchasers/investors the protections that come with SEC registration and oversight.
If you invested in an ICO, should you be worried that the offering might be targeted by the SEC? Yes, you should be worried. That ICO is Alderaan and the SEC has the Death Star. A million voices will scream out about the injustice. So much real money and false value will be destroyed.
The SEC stopped an ICO this week for Munchee. Munchee was seeking $15 million to improve an existing iPhone app for restaurant meal reviews and to create an “ecosystem” in which Munchee and others would buy and sell goods and services using the tokens. The company emphasized that investors could expect that efforts by the company would lead to an increase in value of the tokens and it would take steps to create a secondary market for the tokens. As the SEC has said in the DAO Report of Investigation, a token can be a security based on the long-standing facts and circumstances test that includes assessing whether investors’ profits are to be derived from the managerial and entrepreneurial efforts of others. The Munchee ICO was an illegal IPO.
The Empire of regulatory oversight has many factions. This week the IRS won a case against Coinbase, one of the largest digital currency brokers. The IRS claimed that virtual currency gains have been underreported based on the disproportionate number of taxpayers reporting gains from Bitcoin compared to the number of Coinbase account holders. Coinbase has approximately 5.9 million customers and has provided $6 billion in Bitcoin exchanges. However, the IRS has identified only 800 to 900 taxpayers in each of the years from 2013 through 2015 who reported gains or losses that the IRS believes are “likely related to bitcoin.”
The battle will rage on. Rebel cryptocurrency against the regulated dollar. Which will allow you to buy a coffee at Dunkin Donuts? and which will you use?
See Tom’s posts: