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As a point of comparison, look at https://fundthatflip.com/ https://fundthatflip.com/ (real estate lending) and then compare them to most of the crypto platform

As a point of comparison, look at https://fundthatflip.com/ https://fundthatflip.com/ (real estate lending) and then compare them to most of the crypto platforms. It's not the crypto that is the problem, it is the populist "robinhood" rhetoric that gets crypto into trouble. https://fundthatflip.com/ https://fundthatflip.com/ only works with investors who meet the SEC definition of an accredited investor (something like $2 million in assets not counting the value of one's primary residence). In the whole of the USA, there are only 80,000 accredited investors. The SEC is fine with those people taking on risky investments. If the crypto companies focused their efforts on accredited investors there would be less of a panic about crypto. But most of them come in with a populist rhetoric that sounds like a political movement: they want to bring high growth, high risk investing to the masses, they want to offer something highly speculative to the average person. In other words, they want to try to make an end run around the thousands of laws that we have in place to make sure that the average citizen doesn't get bilked in some scam. It's the pseudo-political element that is getting crypto into trouble. If they simply said "This is highly speculative and only accredited investors should look at this opportunity" then the crypto companies would be on safer legal ground. But it would be difficult to pump up the price of these cryptocurrencies if the bulk of crypto enthusiasts were taking such a moderate line.

piker 5y ago
> In the whole of the USA, there are only 80,000 accredited investors. Incorrect. Maybe you're basing that number off the (alternative) 2 million in liquid assets, but the income threshold is something like 200k/year for 2 years. A quick google shows estimates ranging from 8%[1] to 13 million[2] [1] https://www.archerinvestors.com/accredited-investors/ https://www.archerinvestors.com/accredited-investors/ [2] https://dqydj.com/accredited-investors-in-america/ https://dqydj.com/accredited-investors-in-america/
- gfodor 5y ago
  Is it really true only 80k citizens have 2m in liquid assets?
  - perl4ever 5y ago
    I read somewhere that the financial threshold for an accredited investor has stayed the same for a very long time, without adjustment for inflation. That means that when it was originally instituted, there were much fewer and they were much richer compared to the rest of society. So if someone is quoting an unreasonably low number, they might be using a figure from long ago.
  - pb7 5y ago
    Absolutely not. There are estimated ~100K people with $50M or more.[0] [0] https://www.statista.com/topics/3467/millionaires-in-the-united-states/ https://www.statista.com/topics/3467/millionaires-in-the-uni...
- dataflow 5y ago
  There's more to accreditation than just checking a box that you have the net worth. (And even then, not every household would have checked said box.)
  - eclark 5y ago
    https://www.investopedia.com/articles/investing/092815/how-become-accredited-investor.asp https://www.investopedia.com/articles/investing/092815/how-b... > There is a common misconception that a “process” exists for an individual to become an accredited investor. No government agency or independent body reviews an investor's credentials, and no certification exam or piece of paper exists that states a person has become an accredited investor. Instead, the companies that issue unregistered securities determine a potential investor’s status by conducting diligence prior to sale. In the US as far as I know it's just fulfilling the monetary requirements (income or assets).
    - dataflow 5y ago
      This sentence > Instead, the companies that issue unregistered securities determine a potential investor’s status by conducting diligence prior to sale. means you are not accredited until you have due diligence done on you.
      - mattclarkdotnet 5y ago
        The 'due diligence' consists of getting the investor to fill in and sign a form affirming that they meet the criteria. No evidence is required. I know because I did exactly this just last year to invest in a New York based business.
        dataflow 5y ago
        > No evidence is required. So what though? We're not arguing over how simple or onerous the due diligence process is. Whatever it is, whether it's as simple as just checking a box or as difficult as walking on the moon, it is something that needs to happen before you are "accredited". Households that don't go through that process aren't accredited, even if they're worth a trillion dollars. It's as simple as that.
aqme28 5y ago
Everything you said is correct, but I would really like for the SEC to move away from the “accredited investor” angle. I’m not convinced there’s any real benefit to the populace to restrict a limited (not necessarily riskier) set of investments to rich people.
- joelbondurant 5y ago
  [dead]
- toss1 5y ago
  The real benefit is that these investment vehicles can avoid the regulatory burden required to sell to the general public - which involves proving that you ARE sufficiently low risk. Without providing that proof of lower risk (and a LOT more information), the tradeoff is that you can raise from accredited investors. It is one thing to take $500k from an accredited investor who might wince but can still take the hit if your investment opportunity fails, but quite another to take the same amount from someone for whom it is their entire life savings. Your failure then condemns them to a life of poverty and living on govt programs. Sure it seems nice and egalitarian for everyone to have the 'opportunity' to invest in riskier schemes, but history shows that the times it ends well do not offset the times that it fails. It seems every 3rd or 4th generation needs to learn for themselves. Banking and finance go off on a bunch of new ideas, there are systemic failures and boom/bust cycles, enough people realize that this unregulated wild west is a bad idea and put in regulatory fixes, it gets better, then after a couple of generations everyone forgets and says "why are all these damn regulations here keeping me from becoming wealthy?", starts dismantling them, nothing happens for a while, then the failures, boom/bust, etc start again, lather, rinse, repeat... See Chesterton's Fence [1] [1] https://www.chesterton.org/taking-a-fence-down/ https://www.chesterton.org/taking-a-fence-down/
  - aqme28 5y ago
    I don't think Chesterton's Fence is a good analogy here. It's pretty obvious why this restriction exists, it just doesn't seem like it's worth the downsides (to me at least).
hayd 5y ago
80,000 sounds way too low (since it's not $2m, it's $1m assets OR $200k (single) $300k (joint) income). "We estimate in 2020 there were 13,665,475 accredited investor households in America." https://dqydj.com/accredited-investors-in-america/ https://dqydj.com/accredited-investors-in-america/ I'd argue SEC pushes people who aren't accredited investors into riskier investments.
BayAreaEscapee 5y ago
I don't disagree with your argument, but I think your statement "In the whole of the USA, there are only 80,000 accredited investors" is not quite right. According to this MSN article, "To be considered in the top 1% of net worth, a household needs combined assets totaling over $11 million." [1] That means there are about 3M households that have at least $11M. [1] https://www.msn.com/en-us/money/markets/what-net-worth-is-considered-wealthy-in-2021-this-is-what-americans-say-in-new-survey/ar-BB1gHANo https://www.msn.com/en-us/money/markets/what-net-worth-is-co...
- dataflow 5y ago
  There are 120M households in the US, so you meant like 1M I think. I imagine not all of them are accredited investors, though maybe they could be if they tried to?
  - dragonwriter 5y ago
    > There are 120K households in the US, 122 million, you mean. (The rest of your piece is consistent with that.)
nradov 5y ago
I know some people who became "accredited investors" through the simple step of lying about their assets. Obviously that's wrong, but many investment companies do little or no verification.
cslarson 5y ago
The only way to build wealth is by investing. The SEC gate-keeping this is outrageous.
- serverholic 5y ago
  It's sad you're getting downvoted. Right now our system is setup such that the rich and powerful get special privileges that the rest of us don't. They also abuse these privileges all the time.
- abrazame 5y ago
  I'm unsure about this. On the one hand, it does seem unfair to exclude people who aren't rich from particular kinds of investment. On the other, it might be a good protection for the overall system. The investments we're talking about here aren't your everyday shares and funds, they're the riskier stuff. It doesn't play well on TV to show a grandmother crying over the loss of her retirement savings and some smarmy banker saying "well, Ms Strawman clearly accepted the risks that were set out plain as day on page 2915 of Annex A7 to the disclosure bundle". Before you know it, media pressure leads to bad regulations that mean no one is allowed to make these risky investments.
  - AnthonyMouse 5y ago
    The real problem here is that the constraint is on how much money you have regardless of how much money you're investing. If your net worth is $20M and you're investing $20,000, losing all of it clearly wouldn't bankrupt you. If your net worth is $20,000 and you're investing $20,000, losing all of it clearly would bankrupt you. But then you say to the person with $20,000 that they can't invest $500. Which is kind of nonsense.
    - sgc 5y ago
      Absolutely this. Just make a percentage of net worth requirement. It's pretty hard to find a decent investment if you can't join a syndication or invest in much of anything that has not already been through the ringer of the wealthy a few times, and played out.
hackingforfun 5y ago
I agree that consumers should be educated that crypto is highly speculative. However, an accredited investor might just be someone who got rich through inheritance, i.e., not at all through their own doing, so I don't think that accredited investors necessarily know more about investing. They can, in theory, weather a loss more, depending how much they bet, although AFAIK there are not restrictions on them betting it all. People are allowed to buy lottery tickets. They are also allowed to bet it all at a casino. Why shouldn't someone be able to put even a small amount of money in crypto? Maybe it pays off for them, maybe it doesn't (just like lottery / casino / etc., and I think they have a better chance in crypto). That said I don't really like centralized crypto lenders like Celsuis, Nexo, etc. If anything, I think people have a better chance just buying crypto at spot price and not lending it out, although if someone really was set on lending out their crypto, they are better off with the decentralized lending alternatives.
- somethoughts 5y ago
  The challenge is when enough uninformed investors get scammed at the same time then some politician is going to want to give them all a bail out. Think 2008 financial crisis and the subprime mortgage bailouts - I bet a handful of them knew that buying a house with their shaky credit was probably not a great idea but decided to YOLO it. Of course the corporation/vendor of the scammy investments will fold at that time, but the management will have long since pulled their money out and will be largely unpenalized, leaving tax payers to fund the bail out. That's not to say accredited investors don't get government bailouts when they play it to close to the fire, they do. The bailout is just done quietly in the background and nobody is the wiser...
- lacker 5y ago
  People are allowed to buy lottery tickets. They are also allowed to bet it all at a casino. Why shouldn't someone be able to put even a small amount of money in crypto? You can put money in crypto, though. Buy Bitcoin, buy Ethereum, there are plenty of ways to put your money in crypto. Here New York is going after companies like Nexo that pretend like their risky crypto product is just like a bank account that happens to pay higher interest. Look how they advertise it on https://nexo.io/ https://nexo.io/ - ISO 27001:2013 Compliant. Impeccable risk assessment, data protection, and enhanced cybersecurity $375 million insurance on all custodial assets Earn daily interest on your crypto Add or withdraw funds at any time Personally, I find these to be misleading statements. You can't necessarily add or withdraw funds at any time because you depend on Nexo's solvency which is not guaranteed like it is for a bank account, their risk assessment in my opinion is not impeccable, et cetera. If Nexo is going to pretend they are as risk-free as a bank account, then it seems reasonable for New York to regulate their statements like they regulate bank accounts.
deleted 5y ago
[deleted]
bushbaba 5y ago
More than 80k people meet the accredited investor definition. “ To be an accredited investor, a person must have an annual income exceeding $200,000 ($300,000 for joint income) for the last two years”
logicalmonster 5y ago
> It's the pseudo-political element that is getting crypto into trouble. If they simply said "This is highly speculative and only accredited investors should look at this opportunity" then the crypto companies would be on safer legal ground. Why should some legal investments not even be theoretically available to non-wealthy people? This smacks of the highest sort of elitism to me.
- HillRat 5y ago
  Because those legal investments are voluntarily deciding to adhere to a lower level of regulatory scrutiny in exchange for only being able to sell to wealthier and presumably more risk-aware investors.
  - logicalmonster 5y ago
    Thank you for your response. But in my eyes, you've rephrased the situation as it exists and have not given a satisfactory explanation to my original query. Feels like "Rules for Thee, but not for Me".
    - ethanbond 5y ago
      You either vet the security and anyone can invest, or you don’t vet the security and then sell only to people who are more able to be defrauded without becoming a burden to society.
    - HillRat 5y ago
      I think the slightly longer answer is that the SEC emerged as a way to regulate and moderate the cycles of investment capitalism that dominated the US economy for over a century: the bank insolvencies and speculative bankruptcies of the westward expansion; the fraud and corruption of the pre-Civil War and Gilded Age/Long Depression; and the evasion of state regulations and rampant double-dealing by financial institutions in the 1920s — plus the boom in junk finance, lightly-regulated developing world bonds, and boiler room operations as the SEC was deregulated in the ‘80s, to say nothing of the emergence of complex derivatives in the ‘00s. As a result, the operating mental model of regulators is that investments require strong regulatory oversight, because loosening restrictions has uniformly wreaked economic havoc. However, they also have to balance systemic risk agai st the need for access to the capital markets for smaller (and, yes, riskier) companies, which is why we have reg D offerings. Traditionally, the balancing test has been whether the “accredited investor” can be expected to have access to knowledge and expertise sufficient for them to understand the risk of unregulated and often complex offerings, such as convertible notes. In practice, this usually covers institutions and high-net-worth individuals, who have no excuse for not availing themselves of such expertise, or at least are less likely to lose their shirt if they don’t do so. Systemically, this prevents people from rushing into less-regulated, more risky investments that could create the kind of fiscal and political instability that marked earlier panics — reg D offerings may be riskier, but this way the SEC can manage just how many people are exposed to that risk. (You can, justifiably, be cynical about the fact that very large institutions will happily sink tens of billions into high-risk investments and get bailed out thereafter, but that leads to the question of whether it’s actually worth tightening regulation at the price of reduced financial innovation.) BTW, the SEC has also recently opened up 501(D) criteria so a lack of net worth can be balanced by an appropriate professional or educational background that would give the investor the ability to judge risk, though I don’t think this has functionally changed the definition yet in the field.
YeBanKo 5y ago
I agree, only the selected few should be allowed to participate in financial schemas, that may yield very high rewards. For middle and lower class, let's leave gambling and lottery. Wealth has to come from generations. /s In all seriousness, this is gate keeping, wrapped into "think about the kids" gift paper. At large, US tax payers don't have access to state funded pension. Not all have access to 401k and like. Those that do, often aren't provided with great or flexible options or charged high fees. Plans are tied to controlled by employers. One of the ways to build wealth is to invest it into real estate. But it is hard, to acquire a primary residence hour US families have to compete with foreign investors, local private investors, big institutional investors with exclusive membership, like the one you mentioned, now even municipal pension funds. Not only fewer investment options are available to them, also fewer options to hedge against economic downturn. Tax system favors the rich. Now God forbid the mass gains access to something new, that might actually double or triple their money. Gotta keep them in check. Crypto is a huge gamble, but, at the same time, it is one of those opportunities that can shoot up. I know people whose 401k only recently recovered from 2008 crash and it's unclear how long it will take to recover after then next one. Although, I agree that crypto is not for everyone, but I would rather see it challenge from marketing and advertisement perspective. Make them watch very carefully every word they put in any marketing material. Introduce various cool down periods, that can be a function of your net worth. Come down hard on anyone who touts it as a sure win strategy, but let people take the risk, if they want to.
- refenestrator 5y ago
  If they don't want to restrict themselves to accredited investors, they could alternatively adhere to SEC guidelines for selling financial instruments to the public. Clear auditing, GAAP, prospectus including a frank discussion of risks, etc. It's really not that high a bar, considering the $ involved. You can't ask for no accountability, these rules are written in blood (or red, I guess).
  - YeBanKo 5y ago
    > they could alternatively adhere to SEC guidelines for selling financial instruments to the public. Clear auditing, GAAP, prospectus including a frank discussion of risks, etc. Imo it would make it worse. Most of widely available standard financial instruments are based on some sort of contractual obligations of responsible parties, assets, operations. Risk analysis has been developing for decades for these instruments, and then enter Gamestop and AMC… What would you put in prospectus for bitcoin, ethereum, level 2 cryptos or colored bitcoin? Or something like dash or monero? How do you estimate risk and impact of the upcoming ethereum fork? Using the same guidelines for crypto as for standard financial instruments, will make it look like one of the known investment interests, while in fact, it is fundamentally different. I would say anyone, who tries to sell you a bitcoin under disguise of investment with some known risk properties is misleading.

piker 5y ago

> In the whole of the USA, there are only 80,000 accredited investors. Incorrect. Maybe you're basing that number off the (alternative) 2 million in liquid assets, but the income threshold is something like 200k/year for 2 years. A quick google shows estimates ranging from 8%[1] to 13 million[2] [1] https://www.archerinvestors.com/accredited-investors/ https://www.archerinvestors.com/accredited-investors/ [2] https://dqydj.com/accredited-investors-in-america/ https://dqydj.com/accredited-investors-in-america/

gfodor 5y ago
Is it really true only 80k citizens have 2m in liquid assets?
- perl4ever 5y ago
  I read somewhere that the financial threshold for an accredited investor has stayed the same for a very long time, without adjustment for inflation. That means that when it was originally instituted, there were much fewer and they were much richer compared to the rest of society. So if someone is quoting an unreasonably low number, they might be using a figure from long ago.
- pb7 5y ago
  Absolutely not. There are estimated ~100K people with $50M or more.[0] [0] https://www.statista.com/topics/3467/millionaires-in-the-united-states/ https://www.statista.com/topics/3467/millionaires-in-the-uni...
dataflow 5y ago
There's more to accreditation than just checking a box that you have the net worth. (And even then, not every household would have checked said box.)
- eclark 5y ago
  https://www.investopedia.com/articles/investing/092815/how-become-accredited-investor.asp https://www.investopedia.com/articles/investing/092815/how-b... > There is a common misconception that a “process” exists for an individual to become an accredited investor. No government agency or independent body reviews an investor's credentials, and no certification exam or piece of paper exists that states a person has become an accredited investor. Instead, the companies that issue unregistered securities determine a potential investor’s status by conducting diligence prior to sale. In the US as far as I know it's just fulfilling the monetary requirements (income or assets).
  - dataflow 5y ago
    This sentence > Instead, the companies that issue unregistered securities determine a potential investor’s status by conducting diligence prior to sale. means you are not accredited until you have due diligence done on you.
    - mattclarkdotnet 5y ago
      The 'due diligence' consists of getting the investor to fill in and sign a form affirming that they meet the criteria. No evidence is required. I know because I did exactly this just last year to invest in a New York based business.
      - dataflow 5y ago
        > No evidence is required. So what though? We're not arguing over how simple or onerous the due diligence process is. Whatever it is, whether it's as simple as just checking a box or as difficult as walking on the moon, it is something that needs to happen before you are "accredited". Households that don't go through that process aren't accredited, even if they're worth a trillion dollars. It's as simple as that.

aqme28 5y ago

Everything you said is correct, but I would really like for the SEC to move away from the “accredited investor” angle. I’m not convinced there’s any real benefit to the populace to restrict a limited (not necessarily riskier) set of investments to rich people.

joelbondurant 5y ago
[dead]
toss1 5y ago
The real benefit is that these investment vehicles can avoid the regulatory burden required to sell to the general public - which involves proving that you ARE sufficiently low risk. Without providing that proof of lower risk (and a LOT more information), the tradeoff is that you can raise from accredited investors. It is one thing to take $500k from an accredited investor who might wince but can still take the hit if your investment opportunity fails, but quite another to take the same amount from someone for whom it is their entire life savings. Your failure then condemns them to a life of poverty and living on govt programs. Sure it seems nice and egalitarian for everyone to have the 'opportunity' to invest in riskier schemes, but history shows that the times it ends well do not offset the times that it fails. It seems every 3rd or 4th generation needs to learn for themselves. Banking and finance go off on a bunch of new ideas, there are systemic failures and boom/bust cycles, enough people realize that this unregulated wild west is a bad idea and put in regulatory fixes, it gets better, then after a couple of generations everyone forgets and says "why are all these damn regulations here keeping me from becoming wealthy?", starts dismantling them, nothing happens for a while, then the failures, boom/bust, etc start again, lather, rinse, repeat... See Chesterton's Fence [1] [1] https://www.chesterton.org/taking-a-fence-down/ https://www.chesterton.org/taking-a-fence-down/
- aqme28 5y ago
  I don't think Chesterton's Fence is a good analogy here. It's pretty obvious why this restriction exists, it just doesn't seem like it's worth the downsides (to me at least).

hayd 5y ago

80,000 sounds way too low (since it's not $2m, it's $1m assets OR $200k (single) $300k (joint) income). "We estimate in 2020 there were 13,665,475 accredited investor households in America." https://dqydj.com/accredited-investors-in-america/ https://dqydj.com/accredited-investors-in-america/ I'd argue SEC pushes people who aren't accredited investors into riskier investments.

BayAreaEscapee 5y ago

I don't disagree with your argument, but I think your statement "In the whole of the USA, there are only 80,000 accredited investors" is not quite right. According to this MSN article, "To be considered in the top 1% of net worth, a household needs combined assets totaling over $11 million." [1] That means there are about 3M households that have at least $11M. [1] https://www.msn.com/en-us/money/markets/what-net-worth-is-considered-wealthy-in-2021-this-is-what-americans-say-in-new-survey/ar-BB1gHANo https://www.msn.com/en-us/money/markets/what-net-worth-is-co...

dataflow 5y ago
There are 120M households in the US, so you meant like 1M I think. I imagine not all of them are accredited investors, though maybe they could be if they tried to?
- dragonwriter 5y ago
  > There are 120K households in the US, 122 million, you mean. (The rest of your piece is consistent with that.)

nradov 5y ago

I know some people who became "accredited investors" through the simple step of lying about their assets. Obviously that's wrong, but many investment companies do little or no verification.

cslarson 5y ago

The only way to build wealth is by investing. The SEC gate-keeping this is outrageous.

serverholic 5y ago
It's sad you're getting downvoted. Right now our system is setup such that the rich and powerful get special privileges that the rest of us don't. They also abuse these privileges all the time.
abrazame 5y ago
I'm unsure about this. On the one hand, it does seem unfair to exclude people who aren't rich from particular kinds of investment. On the other, it might be a good protection for the overall system. The investments we're talking about here aren't your everyday shares and funds, they're the riskier stuff. It doesn't play well on TV to show a grandmother crying over the loss of her retirement savings and some smarmy banker saying "well, Ms Strawman clearly accepted the risks that were set out plain as day on page 2915 of Annex A7 to the disclosure bundle". Before you know it, media pressure leads to bad regulations that mean no one is allowed to make these risky investments.
- AnthonyMouse 5y ago
  The real problem here is that the constraint is on how much money you have regardless of how much money you're investing. If your net worth is $20M and you're investing $20,000, losing all of it clearly wouldn't bankrupt you. If your net worth is $20,000 and you're investing $20,000, losing all of it clearly would bankrupt you. But then you say to the person with $20,000 that they can't invest $500. Which is kind of nonsense.
  - sgc 5y ago
    Absolutely this. Just make a percentage of net worth requirement. It's pretty hard to find a decent investment if you can't join a syndication or invest in much of anything that has not already been through the ringer of the wealthy a few times, and played out.

hackingforfun 5y ago

I agree that consumers should be educated that crypto is highly speculative. However, an accredited investor might just be someone who got rich through inheritance, i.e., not at all through their own doing, so I don't think that accredited investors necessarily know more about investing. They can, in theory, weather a loss more, depending how much they bet, although AFAIK there are not restrictions on them betting it all. People are allowed to buy lottery tickets. They are also allowed to bet it all at a casino. Why shouldn't someone be able to put even a small amount of money in crypto? Maybe it pays off for them, maybe it doesn't (just like lottery / casino / etc., and I think they have a better chance in crypto). That said I don't really like centralized crypto lenders like Celsuis, Nexo, etc. If anything, I think people have a better chance just buying crypto at spot price and not lending it out, although if someone really was set on lending out their crypto, they are better off with the decentralized lending alternatives.

somethoughts 5y ago
The challenge is when enough uninformed investors get scammed at the same time then some politician is going to want to give them all a bail out. Think 2008 financial crisis and the subprime mortgage bailouts - I bet a handful of them knew that buying a house with their shaky credit was probably not a great idea but decided to YOLO it. Of course the corporation/vendor of the scammy investments will fold at that time, but the management will have long since pulled their money out and will be largely unpenalized, leaving tax payers to fund the bail out. That's not to say accredited investors don't get government bailouts when they play it to close to the fire, they do. The bailout is just done quietly in the background and nobody is the wiser...
lacker 5y ago
People are allowed to buy lottery tickets. They are also allowed to bet it all at a casino. Why shouldn't someone be able to put even a small amount of money in crypto? You can put money in crypto, though. Buy Bitcoin, buy Ethereum, there are plenty of ways to put your money in crypto. Here New York is going after companies like Nexo that pretend like their risky crypto product is just like a bank account that happens to pay higher interest. Look how they advertise it on https://nexo.io/ https://nexo.io/ - ISO 27001:2013 Compliant. Impeccable risk assessment, data protection, and enhanced cybersecurity $375 million insurance on all custodial assets Earn daily interest on your crypto Add or withdraw funds at any time Personally, I find these to be misleading statements. You can't necessarily add or withdraw funds at any time because you depend on Nexo's solvency which is not guaranteed like it is for a bank account, their risk assessment in my opinion is not impeccable, et cetera. If Nexo is going to pretend they are as risk-free as a bank account, then it seems reasonable for New York to regulate their statements like they regulate bank accounts.

deleted 5y ago

[deleted]

bushbaba 5y ago

More than 80k people meet the accredited investor definition. “ To be an accredited investor, a person must have an annual income exceeding $200,000 ($300,000 for joint income) for the last two years”

logicalmonster 5y ago

> It's the pseudo-political element that is getting crypto into trouble. If they simply said "This is highly speculative and only accredited investors should look at this opportunity" then the crypto companies would be on safer legal ground. Why should some legal investments not even be theoretically available to non-wealthy people? This smacks of the highest sort of elitism to me.

HillRat 5y ago
Because those legal investments are voluntarily deciding to adhere to a lower level of regulatory scrutiny in exchange for only being able to sell to wealthier and presumably more risk-aware investors.
- logicalmonster 5y ago
  Thank you for your response. But in my eyes, you've rephrased the situation as it exists and have not given a satisfactory explanation to my original query. Feels like "Rules for Thee, but not for Me".
  - ethanbond 5y ago
    You either vet the security and anyone can invest, or you don’t vet the security and then sell only to people who are more able to be defrauded without becoming a burden to society.
  - HillRat 5y ago
    I think the slightly longer answer is that the SEC emerged as a way to regulate and moderate the cycles of investment capitalism that dominated the US economy for over a century: the bank insolvencies and speculative bankruptcies of the westward expansion; the fraud and corruption of the pre-Civil War and Gilded Age/Long Depression; and the evasion of state regulations and rampant double-dealing by financial institutions in the 1920s — plus the boom in junk finance, lightly-regulated developing world bonds, and boiler room operations as the SEC was deregulated in the ‘80s, to say nothing of the emergence of complex derivatives in the ‘00s. As a result, the operating mental model of regulators is that investments require strong regulatory oversight, because loosening restrictions has uniformly wreaked economic havoc. However, they also have to balance systemic risk agai st the need for access to the capital markets for smaller (and, yes, riskier) companies, which is why we have reg D offerings. Traditionally, the balancing test has been whether the “accredited investor” can be expected to have access to knowledge and expertise sufficient for them to understand the risk of unregulated and often complex offerings, such as convertible notes. In practice, this usually covers institutions and high-net-worth individuals, who have no excuse for not availing themselves of such expertise, or at least are less likely to lose their shirt if they don’t do so. Systemically, this prevents people from rushing into less-regulated, more risky investments that could create the kind of fiscal and political instability that marked earlier panics — reg D offerings may be riskier, but this way the SEC can manage just how many people are exposed to that risk. (You can, justifiably, be cynical about the fact that very large institutions will happily sink tens of billions into high-risk investments and get bailed out thereafter, but that leads to the question of whether it’s actually worth tightening regulation at the price of reduced financial innovation.) BTW, the SEC has also recently opened up 501(D) criteria so a lack of net worth can be balanced by an appropriate professional or educational background that would give the investor the ability to judge risk, though I don’t think this has functionally changed the definition yet in the field.

YeBanKo 5y ago

I agree, only the selected few should be allowed to participate in financial schemas, that may yield very high rewards. For middle and lower class, let's leave gambling and lottery. Wealth has to come from generations. /s In all seriousness, this is gate keeping, wrapped into "think about the kids" gift paper. At large, US tax payers don't have access to state funded pension. Not all have access to 401k and like. Those that do, often aren't provided with great or flexible options or charged high fees. Plans are tied to controlled by employers. One of the ways to build wealth is to invest it into real estate. But it is hard, to acquire a primary residence hour US families have to compete with foreign investors, local private investors, big institutional investors with exclusive membership, like the one you mentioned, now even municipal pension funds. Not only fewer investment options are available to them, also fewer options to hedge against economic downturn. Tax system favors the rich. Now God forbid the mass gains access to something new, that might actually double or triple their money. Gotta keep them in check. Crypto is a huge gamble, but, at the same time, it is one of those opportunities that can shoot up. I know people whose 401k only recently recovered from 2008 crash and it's unclear how long it will take to recover after then next one. Although, I agree that crypto is not for everyone, but I would rather see it challenge from marketing and advertisement perspective. Make them watch very carefully every word they put in any marketing material. Introduce various cool down periods, that can be a function of your net worth. Come down hard on anyone who touts it as a sure win strategy, but let people take the risk, if they want to.

refenestrator 5y ago
If they don't want to restrict themselves to accredited investors, they could alternatively adhere to SEC guidelines for selling financial instruments to the public. Clear auditing, GAAP, prospectus including a frank discussion of risks, etc. It's really not that high a bar, considering the $ involved. You can't ask for no accountability, these rules are written in blood (or red, I guess).
- YeBanKo 5y ago
  > they could alternatively adhere to SEC guidelines for selling financial instruments to the public. Clear auditing, GAAP, prospectus including a frank discussion of risks, etc. Imo it would make it worse. Most of widely available standard financial instruments are based on some sort of contractual obligations of responsible parties, assets, operations. Risk analysis has been developing for decades for these instruments, and then enter Gamestop and AMC… What would you put in prospectus for bitcoin, ethereum, level 2 cryptos or colored bitcoin? Or something like dash or monero? How do you estimate risk and impact of the upcoming ethereum fork? Using the same guidelines for crypto as for standard financial instruments, will make it look like one of the known investment interests, while in fact, it is fundamentally different. I would say anyone, who tries to sell you a bitcoin under disguise of investment with some known risk properties is misleading.