Take a Lesson from Crypto: Regulation Matters
Shortly after FTX filed for bankruptcy, I received an email from Coinbase – as I’m sure many of you reading this article did as well. The contents of the email? Coinbase’s internal controls: their commitment to transparency, holding customer assets one-to-one, not leveraging accounts, and so on. Basically, how they’ve done everything right, even as one of their peers very publicly did something wrong.
The only problem: not once does the email mention regulators or any kind of government oversight. Why? Because as it stands today, there isn’t any.
As investors, how can we trust Coinbase – or just about any other crypto exchange – with our money? Without regulation, they aren’t subject to monthly net capital reports or annual audits. Do we trust that they’ll simply do the right thing – even when they’re only accountable to themselves? We saw the dangers of that kind of blind trust with FTX. Odds are, until the world of crypto becomes regulated, we’ll see it again too.
Luckily, most of the financial industry – including equity crowdfunding firms, like StartEngine – is highly regulated. Putting money in a checking account can feel boring compared to speculating on a new token. But you sleep well at night because the checking account is insured up to $250,000 by the FDIC.
Any financial instrument needs regulation because money is fungible, intangible and can be made and lost, sometimes with alarming speed. So investors need some assurances that a third party holding their assets is handling them responsibly.
Take StartEngine for example. We’re subject to hundreds of rules and constant review by regulators. Much like traditional banks, our accounts are insured up to $250,000 for cash and up to $500,000 for securities too. This is what’s necessary to build trust with investors.
So what’s next for the world of crypto? Congress will attempt to write some form of law regarding the issuance, storage, and transfer of crypto. Once passed, the SEC will eventually implement the new regulation – though this could likely take three to five years. And finally, FINRA will supervise the sector by adding an extensive list of rules for broker dealers and financial institutions. It’s a long process, yes, but ultimately it will be worth it.
In the meantime, investors beware. We all want higher returns. But when you invest in a space that’s completely unregulated – the risks go up exponentially.