Regulatory ideas
In “The problems of cryptocurrency regulation (Part 1),” virtual currency is mentioned. Someone asked the Hong Kong Securities Regulatory Commission to use the term virtual assets. What is the relationship between the two?
The concept of cryptocurrency includes securities and commodities. The government divides them into two departments for supervision. The Hong Kong Securities Regulatory Commission regulates assets, and its positioning is correct. Bitcoin is positioned as a stored-value currency, which is not under the jurisdiction of the Securities Regulatory Commission. As cryptocurrency is a large category, the corresponding concept is virtual currency rather than virtual assets. I did not comment on the Securities Regulatory Commission’s definition of assets in this quotation. It is always a pleasure to have someone ask questions.
Poor supervision is very harmful to the market; Industry supervision should have a unified scale
There are big trees and small grasses in the ecology. Cut down the big trees, and the small grasses will grow. Then, herbicides are applied, and the result is that the trees are gone, the grass is gone, and it becomes a wasteland. Industry supervision must have a unified scale to ensure the healthy development of the ecology. Otherwise, it will be a case of suppressing one thing and causing another. The rise of meme coins in 2024 resulted from poor supervision by the US SEC. Someone asked Gary Gensler if Ethereum is a security? He didn’t dare to answer. It shows that he doesn’t have a precise classification in his mind. For the fundamental issue of industry development, which type of tokens are securities? It must be clearly defined in advance. If you don’t know it yourself, you will act recklessly, and the result is that the court will make a random judgment. The sensational case of the US Securities and Exchange Commission suing Ripple two years ago was ridiculous in two parts. There may be no standard. Did Hong Kong develop better after there were regulatory laws or no regulations? Don’t you know it in your mind?
Why did all the applications of major exchanges withdraw? Years of practice have proved that supervision has not effectively curbed market fraud and other destructive behaviors but only suppressed the crypto market’s development. It is wrong to classify cryptocurrencies as securities management. Experts who only understand traditional supervision follow the original idea of managing cryptocurrencies as stocks. The two have many similarities, but they are entirely different ecological structures. Putting women’s clothes on a man is the current level of supervision. It is the same whether it is the United States or Hong Kong. We need an independent regulatory agency.
The competition of cryptocurrencies is a competition between countries
Recently, many crypto people have gone to Thailand. The conversion speed of active crypto locations is breakneck, from Hong Kong to Singapore, then to Dubai, and today to Thailand. There is an interesting saying: From Hong Kong to Singapore is a policy issue. From Singapore to Dubai is a cost issue. From Dubai to Thailand is a cultural issue. The final analysis is the sequelae of China’s policy at that time. Hong Kong, how capable are you to attract these street kids?
It is difficult for President Trump to build a crypto capital because the bottom layer of these street kids is yellow. Suppose Trump exempts personal income tax and adopts the policy of holding more than 500,000 US dollars in Bitcoin to apply for US citizenship. In that case, it will align with the policy of attracting talent in the Internet era. You only need to prove that he has Bitcoin. How to prove: “One Bitcoin immigrates to the United States.” I think the United States will harvest the top cryptocurrency players.
Attracting street kids is so important. Just look at the top cryptocurrency exchanges, and you will see that the top 1-3 exchanges are all run by Chinese people. So, Chinese people account for more than one-third of the cryptocurrency and should be the largest in the world in terms of number.
Transparency and community are the two magic weapons for cryptocurrency regulation
The characteristics of the Internet are borderless, not hierarchical, frictionless, barrier-free, and rapid point-to-point transmission. It is the fundamental characteristic of the Internet. Everyone uses the Internet as a boundary, not national borders. Obviously, hierarchical industrial thinking and laws that draw lines to confine themselves are not suitable for the underlying structure of the Internet. Cryptocurrency is in line with the characteristics of the Internet. You can refer to the laws of the industrial age, but cryptocurrencies must have their own unique laws. Musk wielded the stick of “transparency” and used the X community to reduce the bill of the US Congress from more than 1,000 pages to more than 100 pages. If Musk could only make suggestions, Congress might not even listen. When the people knew the proposal was “open and transparent,” they called the congressmen, and Musk and Vivek won.
This is also the case in the United States, where members of Congress are elected, and the people’s voices are loudest. Musk deeply understands the underlying logic of cryptocurrency and the Internet. Musk set an example by correctly using the community and transparent decision-making mechanism.
Crypto regulation should reflect the spirit of the Internet age, use the thinking of the industrial age, and the pyramid-shaped decision-making mechanism, so that the voices and demands of the front line cannot reach the decision makers usually, and even if voices reach them, there is no pressure. An official’s wrong policy may be a crime that cannot be pursued. The losses they cause exceed all the crimes of the market. Just calculate the amount of crime from Luna to FTX compared to the losses caused by the improper governance of the SEC. One is worth tens of billions, and the other is worth hundreds.
The regulation requires global organizations
The Internet is global, and corresponding regulations must have global organizations and consensus. I have always advocated that Bitcoin should have a foundation. In fact, cryptocurrencies should also have foundations to form a crypto community to discuss relevant policy issues and form opinions. On top of this, it has become a consulting agency for global organizations. The industry must have a guild to fight against Gary Gensler and other laypeople who are leading experts in regulatory agencies. The losses caused by Gary are as high as hundreds of billions, and they cannot be held accountable. For this, you can refer to the article “Behind the Scenes of the SEC’s Approval of Bitcoin ETF” which records the history of Gary’s governance, causing losses and causing turmoil in the crypto industry.
Long-arm Jurisdiction and Global Decentralized Project Regulation
1. How to regulate decentralized projects without controllers?
Cryptocurrency involves currency issuance, and it was unclear whether it violated the law in the early days. The free dollar and e-gold sentenced before Satoshi Nakamoto were pegged to the US dollar. In contrast, the Bitcoin designed by Satoshi Nakamoto was not pegged to the US dollar, and the total amount of coins issued was limited. It was fundamentally a stock logic and had no financing. In this way, Satoshi Nakamoto chose anonymity with trepidation. Then, Gavin Andresen, the successor of Satoshi Nakamoto, was concerned about whether it would be illegal to participate in this project. He felt that I didn’t make any money, so there should be no problem.
Today, humanity has recognized Satoshi Nakamoto’s contribution. Currently, it is impossible or unregulated to supervise projects without controllers and anonymous projects.
2. How to supervise decentralized projects with controllers?
Regardless of whether the project is decentralized or not, the controller must always have a nationality, or even multiple nationalities, so that various countries have jurisdiction over people of numerous nationalities. Some countries believe that they have long-arm jurisdiction over their laws, including the power of sanctions.
Decentralized projects with controllers can be supervised. Times have changed. Development projects should not be anonymous; they should be real names. Projects that dare not be real names may have problems. Supervision is necessary, but don’t manage it unquestioningly if you can’t manage it.
Don’t manage if you can’t manage it
The market has its own rules. If you don’t understand it clearly, don’t manage it. Do you know the world of children? If you don’t understand, adults managing children often backfires. It is wishful thinking to use the old system to manage new things and want children to grow up like you. It is not progress.
Regulate according to the characteristics of cryptocurrency
Cryptocurrency has five major characteristics: personal sovereignty, community autonomy, transparency, fairness, justice, and immutability. Its characteristics are consistent with the idea of “equal rights” on the Internet. The Bitcoin system has achieved personal sovereignty, community autonomy, transparency, fairness, and immutability. Justice means that there is a central controller. The Bitcoin system has no owner, so justice is not required. Therefore, Bitcoin does not need to be regulated. Whether the project party is justice involves supervision. The above five indicators are not achievable for every project, and this is where supervision comes into play. To explain the five major characteristics, please refer to my article “What is the Internet Age.”
Evaluation criteria for the effectiveness of supervision
Do regulatory authorities accept transparency supervision? I have never seen their open day in Hong Kong.
Do regulators have a community, publicly respond to everyone’s opinions, and interact with the community?
Is the salary of regulators linked to the progress of the industry? Do you accept community voting wages?
Is the influence of the industry in Hong Kong increasing? Is the number of enterprises increasing, and is the turnover increasing? How much ineffective supervision has been reduced? Etc.
Is there an open advisory committee mechanism?
Does supervision effectively reduce the cost of the project party? According to the regulatory regulations for cryptocurrency exchanges issued by the Hong Kong Securities and Futures Commission, the cost of exchange supervision is very high, and the cost paid is as high as more than 20 million US dollars, which is obviously problematic.
Does it promote effective innovation? After 2000, the world strengthened supervision, and effective innovation seemed to be much less, and the leeks produced by invalid meme coins became crazier. It reflects the sadness of the industry.
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Please listen to the next analysis for specific regulatory methods.
