Is the SEC inflating the crypto-bubble?
One of the murkiest areas of modern finance, as of Tuesday, fell under the scrutiny of the US regulatory authorities. The booming cryptocurrency industry has hitherto provided an unregulated source of free capital to tech start-ups, but those days could be over.
And not before time. It was a dangerous absurdity that start-ups have been able to get hundreds of millions of dollars from investors, including retail investors, in exchange for products that have been, in many cases, marketed as investment products, but without making the disclosures required of such products to regulatory authorities.
Hopefully, those days are coming to an end and we will have a more mature market with fewer people looking to raise capital based on flimsy business plans.
The downside is that the SEC’s presence in the market will be interpreted as a seal of approval by all sorts of investors who have held back until this point. But remember, asset bubbles also occur in regulated markets.
Until investors begin to properly assess the long term value of individual crypto-investments, by evaluating the viability of a particular decentralised application, rather than simply piling into what is an immensely “dynamic and creative” asset class (i.e. hot), then the bubble will continue to inflate.
If we are lucky, this will herald a period of maturity and professionalism in the market, and professional investors will do what amateurs have often failed to do and honestly gauge the merit of an investment opportunity.
If they do not, the SEC’s entrance will simply inflate the crypto-bubble further and spread the risk from private investors to institutions.