Rapid technological innovation over the past five years has created unprecedented opportunities for entrepreneurs – often outside the world of traditional finance and capital markets. Cryptoassets, for example, may prove to be socially beneficial tools for enabling entrepreneurs to more efficiently raise capital, and making sure those and other welfare-maximizing financial innovations succeed has become paramount for researchers and policymakers. In a recent paper, The Leviathan of Securities Regulation in Cryptoasset Markets, I aim to assist U.S. capital market regulators in determining how best to achieve this goal.
Unlike many foreign countries, the U.S. does not have regulations tailored specifically to crypto-markets, relying instead on existing securities and commodity regulations. The Securities and Exchange Commission (“SEC” or “Commission”) in particular has emerged as the leader in enforcing those regulations. A fundamental problem, though, is that neither complying with such regulations, nor the amount of penalties paid for noncompliance, should be the measure of regulatory success in the cryptoasset market. A more appropriate yardstick would be whether the regulations and enforcement have benefited market participants and channeled their behavior towards productive results. My article shows that, unfortunately, compliance with pre-crypto securities law may neither generate economic benefits to market participants nor channel their actions toward creating a more efficient and transparent cryptoasset market.