Every now and then, it’s probably a good idea to go back and check yourself in terms of what you have said, written, built, or perhaps even supported in the past. In the context of digital assets and investing, I recently read through my four most recent posts. Thankfully, I haven’t uttered anything I’m frightfully embarrassed about, but the very process of combing through recent writings seems to have a nagging thought as its source: what if the SEC’s Gary Gensler is correct and that pretty much every digital asset in existence, except for Bitcoin, is a security?
In my March 17, 2022 post, I listed out more than 20 federal agencies that had been tasked by President Biden’s Crypto-based Executive Order to begin taking some type of formal action in regards to digital assets. At the time, I asserted that including more than 20 different agencies made the order rather broad in scope. While that scope was quite broad, the reality we find ourselves in today is that two agencies are currently in a turf war over crypto: the Securities and Exchange Commission and the Commodity Futures Trading Commision.
At present, the SEC is still engaged in a lawsuit against Ripple Labs, and top executives Chris Larson and Brad Garlinghouse. While I have paid attention to this case from afar, I am hardly dialed in to the day to day happenings. I mention it here for one reason: when the SEC decided to come after Ripple, they had no problem identifying the entity involved and the individuals who had supposedly misbehaved. Should the SEC ever decide that Bitcoin is a security, who would they sue? What individual would they come after? At this point in Bitcoin’s existence, it is almost comical to consider. In other words, Bitcoin’s status as a currency, as a commodity, as a store of value, or whatever, is truly in the eye of the market, and not in the eye of a regulator.
Gensler’s SEC recently declared that 9 particular coins listed on Coinbase are in fact securities. The rationale behind this declaration seems feeble at best, but what many in the crypto space are not asking is this: “what if Gensler is right?” When I ask this question, what I’m really asking is this: “what if Gensler is right, and the entire crypto space would be better served by distinguishing the truly decentralized protocols from those that are not?”
The question of decentralization is usually what the “security or not a security” question typically comes down to, but to this point, it has been what investors care the least about. With the demise of Terra Luna and the aftershocks it created, I believe investors will eventually care. To be fair, they may not care directly, but fund managers will indirectly care for them because managing risk in the current climate is now more important than picking the right assets.
That Gary Gensler has been bad for the crypto space in the short term seems hard to dispute. What is up for debate at this stage is what his stance will mean for the space going forward. If Ripple Labs was simply found on the NASDAQ instead of Coinbase, what would be the real impact on investors? What if Gensler is right and Bitcoin is in a class all by itself? What if all the optimism and promise of so many alt coins has simply distracted us from the reality that Bitcoin is what truly matters?