Posted 3 weeks ago | by Catoshi Nakamoto
The deck is stacked against the retail investor in the traditional stock market, and it’s not just because the whales have more money, the laws are written in their favor. Believe it or not, it is actually illegal for you to get a decent entry point on privately traded companies. Maybe that’s why there is so much excitement… and fear…about crypto. In this video we’re going to talk about the accredited investor law scam, and how they allow the government to pick winners and losers by giving millionaires special treatment in the stock market.
Let’s get it. Welcome to Bitboy crypto…
If you’ve been in the game a while you’ve probably figured out that the best way to make money investing is to identify a good project early in its development before the rest of the market has taken notice, and then capitalize on the gains once that project becomes a success. This is why so many of us have been able to make such good money in crypto, opportunities to get in early are everywhere. But the gains that we have seen in this industry are not possible in the traditional stock market, at least not for the average person investing in publicly traded companies. This is because the cards are stacked against the retail investors, who are legally prevented from access to the private market and other speculative investments. All of this, of course, “is for our own protection.”
The SEC and other bureaucrats in Washington think that we’re too dumb and “unsophisticated” to make decisions with our own money, but they are happy to watch us buy overpriced bags from the hedge funds that they allowed to cut the line. This sounds crazy but this is actually the design of the SEC’s accredited investor laws. In order to make early stage investments in companies or ventures that aren’t registered and regulated as securities, you need to be an accredited investor, which basically means that you need to A. work for a hedge fund B. Have a Series 7, 65 or 82 license C. be a millionaire, or D. have an annual income of at least two hundred thousand dollars.
According to the SEC’s own estimates, only 13% of the US population can qualify as an accredited investor. This creates a situation where all of the early investors for every successful company are the richest people in the country. This obviously widens the gap between the rich and the poor, making it all but impossible for poor or middle class people to get ahead through investing. And it’s not like their savings accounts will ever be able to catch up with inflation, let alone the accredited investors that were allowed to get in early on companies with up side. These market dynamics also make these stocks weaker assets as well, because larger chunks of the supply are held in fewer hands. In other words, accredited investor laws make the supply of these stocks far more centralized than your run of the mill mutual fund. This puts more power in the hands of fewer people, both in the boardroom and in the markets, where VCs and other firms are notorious for dumping on retail, especially after high profile IPOs.
The SEC tells us that this is for our own good, that we should wait for our betters to vet the appropriate investments before we, the plebes, can invest because otherwise we will buy into scams and lose all of our money. Um, news flash Gary; people lose their money on the stock market all the time though, and the SEC is never there for the retail investor. Many of the dramatic crashes that we have seen in the traditional stock market involved some of the most trusted companies of the time. Earlier this year we saw the stock for Facebook crash 26% in one day, looking more like a memecoin than a publicly traded company.
If you think back to the massive economic crash in 2008, many of the firms that went under, Bear Stearns, AIG, and Lehman Brothers all had the full backing and support of the US government and establishment media. We all saw how that worked out. Retail investors and homeowners paid the price while the institutions that caused the problem in the first place were bailed out. This is because the stability of the system was more important than the lives of the little people. This was the whole idea behind the “too big to fail” excuse that was used to justify the bailouts. The system was never working out for the little people though, and financial regulations that keep the system stable, actually just keep most of us poor.
The idea that investors with over a million dollars in the bank are more intelligent or capable on average is laughable. Just turn on the TV, you’ll see rich idiots everywhere. There are thousands of farmers, AC repairmen, and other working class parents that are much better at balancing a checkbook than most hedge fund managers, but they aren’t playing by the same rules and they don’t have the same opportunities to better themselves. The Besties over on the All-In Podcast regularly take shots at the accreditation laws and breakdown how ridiculous they are. (clip)
It’s easy to see how accredited investor laws hurt retail investors, but they also hurt small businesses and low-income communities as well, because they are often overlooked by accredited investors who are more focused on bigger companies and they are not allowed to raise money from retail investors because smaller businesses are classified as high risk.
This is why crypto is so promising – and threatening to TradFi. In addition to offering a decentralized store of value and medium of exchange, crypto also promised to decentralize investing by allowing anyone with an internet connection to make an early stage investment in a project with basically no barrier to entry aside from capital. This was the first major use case for Ethereum, ICOs or Initial Coin Offerings. With smart contracts on Ethereum, teams were able to easily launch tokens and crowdfund their projects with small contributions from retail investors around the world. This entirely bypassed accredited investor laws and allowed the average person to get good entry points on promising projects regardless of how much money they had in the bank. As a result, a lot of people who never had the opportunity to build wealth were able to get rich very fast. Of course, a lot of people lost money too, but remember this happens in the traditional stock market as well. ICOs get a bad rep because there were a lot of cash grabs and rug pulls, but again, this happens all the time with publicly traded companies. You don’t need to reach too far back in the news cycle to find companies like Theranos or WeWork that were accused of similar behavior. Also, people forget this fact, but many of the most successful projects in the industry actually started as ICOs, and have since earned their initial investors insane gains. Projects like XRP, Cardano, AAVE and Chainlink all launched as ICOs. Even Ethereum technically launched as an ICO.
Unfortunately, as soon as ICOs started bringing in money, the SEC came in to crash the party, claiming that pretty much every token that launched as an ICO is an unregistered security, and as a result, many of the initial investments were deemed illegal, because they were not made by so-called accredited investors. There were plenty of scams that were used as justification for the regulatory action, but there were also major lawsuits filed against legitimate projects, as we saw with XRP. Since the SEC started cracking down on projects for selling tokens to people who weren’t accredited investors, teams have been pushed right back into the arms of the VCs, and retail investors have suffered as a result. Now the crypto markets are starting to look a lot more like the traditional markets, where VCs get in early and then dump on us when we go to buy a token the first day it’s listed on an exchange.
This is why it has become extremely important to look at the fully diluted market cap of the tokens that you’re buying. If there is a big gap between the market cap and the fully diluted market cap, that means that there are a lot of tokens held by early insiders who will put sell pressure on the asset. This is standard procedure in the traditional stock market, and it was one of the main things we were hoping to avoid in crypto.
There is a way to fix this and make investing more open and equitable. You take a test. Just like you would for your drivers license, to own a firearm or sell real estate. Earlier I mentioned the Series 7, 65 and 82 licenses but those are not the same of a general aptitude test for all citizens. Those specialized license require various sponsorships from the SEC itself, from an employer that is an investment company or from someone who is already licensed that runs a private firm. The requirements also vary by state. Compare that to a test that shows you have a baseline understanding of risk and financial instruments that you could be taught in highschool. This would create not just a wave of liquidity for the private market, but would pull millions out of poverty and change the composition of the middle class in America for generations to come. It’s such a simple fix that it makes the intent behind the Accredited Investor laws all the more obvious; to protect the elites.
But the good news is – it’s a law. And laws can be changed. The more we talk, tweet and comment about it the more the idea of change will take hold. Representative Tom Emmer has already opened up the discussion on the floor of the House. The idea is catching on but it’ll take pressure from YOU and others to change minds and put the SEC back in their corner where they belong. Check the description for a website that will show you who your senator and representative is, drop them a courteous email and explain how you want to see Investor Accreditation reformed.
That’s all I got. Be Blessed. Bitboy Out.