I Don’t Think Satoshi Nakamoto Was Saying We Need a Reg A and a Reg D – Opinionbr>
Before the implementation of the Securities Acts of 1933 and 1934, US capital markets were essentially governed by the ‘law of the jungle’ – conditions that led to the stock market crash of 1929. These laws significantly constrained the ability of non-accredited investors (those without significant income or net worth) to play an active role in the private markets, and prohibited the marketing of non-registered securities to the general public. This not only restricted access to financing but also reduced the ability of the majority of Americans to invest in these markets.
Since then, the US private capital markets evolved significantly, guided always by three broad themes:
1. Markets desire to be efficient. Given time, they will always seek to optimize efficiency in the face of whatever regulatory or execution-related constraints exist.
2. Subsequent to the disruption caused by the introduction or removal of regulations, new technologies or models; capital markets will typically experience a period of chaotic activity, followed by the development of a new order that is governed by that desire for efficiency.
3. Investors seek high returns, which typically require acceptance of a high degree of risk. However, they also seek organization and focus, as a function of their desire to manage that risk. This desire drives realignment and structure in the market – as investor continually push the boundaries of technology and their understanding in order to increase their returns.
Startup fundraising methods have historically consisted of obtaining funding from institutional investors, high net worth individuals and investment funds. While still prevalent, this model of financing has been placed under tremendous pressure due to a multitude of factors, including:
The Internet, which has provided a platform of communication for every individual with an idea or a dollar to invest.
Today’s social media-driven culture, which has allowed for the distribution of idea campaigns and investment opportunities to a much wider audience than was ever previously possible.
The dotcom boom and the millennial-driven ‘maker’ movement, which have given rise to thousands of dedicated, internet-savvy entrepreneurs seeking to fund new and innovative ideas.
The 2008 financial crisis, which drove many traditional investors to turn to safer assets with higher yields and created a significant early-stage funding gap.
Satoshi Nakamoto has given us a true work of art in his whitepaper and in the bitcoin blockchain, where for the first time in history digital currency could be traded without the need for a third party. His invention of the distributed ledger has opened up an incredible new platform for secure and open data sharing. Just as the Internet fundamentally changed the way we share information, we now have a new platform that is going to revolutionize the way we transact as governments, businesses, and individuals.
While the rise of the modern day equity crowdfunding model under Regulation D and Regulation A+ pushed the ball forward in democratizing access to investment opportunities, it does not do nearly enough to turn the tide against the tyranny of crony capitalism, exclusionary financial markets, and inflation tax. The limitations of these regulations to accredited investors and extremely expensive compliance prevents the 99% from participating fully in the capital markets.
As Fred Wilson of Union Square Ventures puts it, “My concern is that the venture capital industry, as it’s organized today, can only put to work $15 billion intelligently. That doesn’t mean that more money can’t be put to work intelligently. It just means that we can’t figure out a way to do it.”
We have witnessed what government regulation can do in the 2008 financial crisis, and are certain that the blockchain as an administrative system is significantly more reliable than current government organizations and corporations. Yes, there will be blood, and fraud and theft will need to be monitored by traditional regulations until decentralized autonomous organizations can govern these issues more efficiently. But once that happens, the private capital markets will become more democratic, transparent, and efficient — a welcome development for all.
As an avid investor in the crypto markets, David has been successful picking winners among the many tokens and protocol coins that have emerged over the past few years. David is a self-designated “dexpert” or expert in decentralized cryptocurrency exchange platforms. He has studied the industry diligently while pushing the DEX space forward towards mainstream adoption.