Excited About Crypto? The Feds Are Too

It all started with the “Genesis Block.”

On Jan. 3, 2009, Satoshi Nakamoto mined the first “block” on a distributed network known as a blockchain—and suddenly bitcoin was born.

Within two years, the nascent cryptocurrency had captured the imagination of the early adopter masses. And when the masses’ imaginations kick into high gear around money (especially in an area where they don’t have a whole lot of actual knowledge), you’ve got an environment ripe for the picking.

In late 2011, a bitcoin advocate who regularly contributed to several forums and went by the (very appropriate) handle Pirateat40, launched a “high-yield bitcoin investment program” he dubbed Bitcoin Savings & Trust.

For minimum deposits of 25,000 BTC, he offered weekly interest of 7 percent—that’s over 3,000 percent a year. (He claimed he made his investors money via a bitcoin market arbitrage, which, ironically, was the exact same story Charles Ponzi told his investors about his international reply coupon scheme nearly 100 years earlier!)

Anyway, by August of the following year, reality had struck and Pirateat40 announced he was closing the Bitcoin Savings & Trust and would be returning investors’ money… which, of course, never happened.

So… enter the government.

Dangle the prospect of earning incredible—and by incredible I mean NOT credible; totally unbelievable—returns and they’re in.

And even now that cryptocurrencies have finally fully ascended to the public consciousness, few lessons have been learned.

These days, that means a full court press in terms of regulations where all things crypto are concerned.

There’s only one problem. The distributed networks where these cryptographic assets live make it virtually impossible to regulate.

But handicaps like that never stopped the government before. And from a regulatory perspective, there are a couple directions they can take.

First, since they can’t regulate the mining of the actual coins, they’ll need to regulate how those coins are used. In other words they’ll most likely target companies that offer to transact in it, like businesses from banks to crypto exchanges all the way down to the Starbucks on the corner. If you can’t spend it, it takes a lot of the appeal away.

The other option they’ve rolled out is something called the “Howey Test.”

The Howey Test came from a 1946 Supreme Court case in which the defendant sold tracts of citrus land in Florida to investors who then leased it back to the company. The company used the proceeds from the sale to develop the land, sell the crops, and then shared the profits with their investors. The problem was the SEC determined that this arrangement constituted an “investment contract” and therefore had to be registered as a securities arrangement.

The only thing the government can deliver reliably, repeatedly, and without fail are unintended consequences.

I firmly believe that. They’ve proved it time and again.

But like it or not, they’re going to be in on this. Which means the NFT sector of the crypto space is likely to start experiencing some growing pains in the coming years as the SEC decides which fall under their regulatory eye.

And despite the threat of government interference, I’m totally bullish on the crypto space.

If you’re looking to get into crypto, but aren’t ready to jump into the deep end of cold wallets and NFTs, you might take a look at some of the larger publicly traded crypto miners—like Riot Blockchain (RIOT), Marathon Digital (MARA), and Northern Data (NDTAF).

We have our eye on some smaller crypto mining operators too. Keep an eye on this space for updates.