There are a lot of people who are skeptical of Bitcoin, of cryptocurrencies and of blockchain technology in general. Skepticism is a natural and instinctive reaction that has kept humans alive since our inception. Because the skeptical reaction instinct often times resulted in survival for early humans, it can be argued that it is not a bad thing to be skeptical when you first see something new. There is a big difference in being skeptical at first and continually ignoring something that could be beneficial to you because you fail to explore it. In this multi part report we will discuss the financial gains lawyers, accountants, exchanges, bankers, traders, brokers and financial regulators stand to make as well as the potential landfall increased tax revenue created as a result of a mature and mainstream cryptocurrency industry. This multi part series should make the case that there is too much to gain financially for these groups to want cryptocurrency and Bitcoin to fail. These groups will in fact help cryptocurrency become mainstream and they will aim to sell, service and otherwise profit from cryptocurrency and Bitcoin once they help it become as ubiquitous as stocks, bonds and mutual funds.
The United States has come a long way since the first traders met literally underneath a buttonwood tree in New York City to begin trading as we know it today. I'm sure as people walked by emptying their equally literal piss pots, they were skeptical. Fast forward to today: New York City is thriving and known to many as the financial capital of the world. Nearly incalculable sums of money are thrown around every hour of every day. One segment of that money, investments, are of particular importance to cryptocurrency. You see, cryptocurrency is currently painted as wildly speculative, extremely risky and volatile. Many would caution you to stay as far away from them as possible. The same people, institutions, media outlets and banks that are telling you to stay away from Bitcoin and cryptocurrency are going to turn right around and try to sell cryptocurrency and crypto related services to you within a few short years.
Much like the early traders under the buttonwood tree, we're ahead of the curve. Unlike the buttonwood traders and luckily for us, it won't take 200 years for Wall Street to develop to a point where they can profit wide scale from the masses by creating and packaging new financial products to sell. The systems are currently in place for a rapid roll out of cryptocurrency and Bitcoin products. So what's stopping this from happening now? One answer could be inventory. The current day Wall Street behemoths do not have enough crypto and Bitcoin inventory to push it quite yet.
Bitcoin is not a simple technology. As such it takes time and effort to learn enough about it to understand it. On top of that, it's distribution method, mining, is open to any and all people. You simply have to be interested in mining, do a little bit of research on how to set up a miner and have the equipment which was initially just a computer, electricity and internet connection in order to mine Bitcoin. This resulted in a minority of people mining Bitcoin, people who were generally interested in computers or cryptography. Unless Satoshi Nakamoto is a government entity or affiliated with Wall Street or a bank, the majority of Bitcoin is in the hands of non traditional financial industry players. Bitcoin simply flew under the radar for the period of time (2009-2014) when it was easiest to accrue due to low mining barriers (low hash rate) and cheap price. As a result when Bitcoin started its most recent growth frenzy, Wall Street for the most part was on the outside.
Now that Bitcoin is a household name, it would be perfect for Wall Street to start selling it, making fees off of the sale, financial products such as cryptocurrency index funds, and as part of retirement accounts. Almost any financial product sold on Wall Street today could have a Bitcoin or cryptocurrency version being sold right alongside it. The problem is Wall Street doesn't hold enough Bitcoin and other cryptocurrencies to create these financial products. Why else would Wall Street let Coinbase make over 1 billion dollars in revenue last year? One theory is if traditional financial industry players could have made the money instead, they would have. However, Coinbase took the early risk and as a result is in the lead by a long shot, poised to continue it's exponential growth into the future. Coinbase was able to build their stash of crypto assets like Bitcoin to power their exchange when those assets were much cheaper to acquire and as a result is cashing in on the seemingly endless fees available as a result of cryptocurrencies boom.
Another theory would be Wall Street wanted someone like Coinbase to take the risk. Once a group like Coinbase did the hard work of getting it all started and getting cryptocurrency to catch on, Wall Street could swoop in and take over. Coinbase will certainly face a great deal of lawsuits and issues with financial regulators over the next few years, and the fact is that just one court case or issue could be fatal for the dominant cryptocurrency exchange. The result of just one bad outcome in court or with regulators could result in the total shutdown of the cryptocurrency exchange.
This isn't the only role financial regulators have to play in the cryptocurrency space. Let's take a look at the reach, breadth and power of financial regulators by looking at just two groups, the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). It is important to look at these two groups because they represent two very different groups in a large pool of powerful regulators. These are arguably two of the most important regulatory bodies in the United States financial system.
The Securities and Exchange Commission is a government entity. The purpose of the SEC is to maintain the integrity of the markets which includes both over the counter markets as well as exchanges, and also to protect investors. The scope and reach of the SEC is vast, and the SEC had 4,301 employees as of 2015. That is a lot of man power to execute on their mission. The SEC more or less has a purpose of looking out for the individual investor.
The Financial Industry Regulatory Authority is not a government entity, but it does have regulatory powers. FINRA is a not for profit self regulatory organization. FINRA is overseen by the SEC and is at the forefront of licensing and regulating broker-dealers. FINRA has 3,400 employees. FINRA overseas the licensing of over 630,000 brokers and over 3,700 securities firms. So what does this all mean?
FINRA statistics
It means that financial regulation is big business. The SEC had a total budget authority of $1.65 Billion dollars in 2017. The SEC has requested a budget of $1.68 Billion for 2019. That growth will continue under normal circumstances, but it will be supercharged with a full scale roll out of cryptocurrency financial products. In fact, the ICO craze has obviously garnered an extreme amount of attention and regulation will step in. These regulatory agencies are poised to grow exponentially due to ICO's alone, but it will be supercharged with a roll out of cryptocurrency financial products that will no doubt require a Series 7 style license to sell at the broker level, licenses at the firm level and all of the courses and certifications required along the way. Online courses, schools, trainings, licenses, fees in addition to all of the careers and salaries created through these agencies will pump cash into the regulatory components of the industry. The public, the private and the non profit sector all stand to gain by increasing their entities and business based upon the legitimacy of cryptocurrency as an asset class. This is big business and it will only get bigger, and you can be sure that regulators want to take advantage of that growth.
Regulation does not exist on it's own. Lawyers play a few major roles in the regulatory landscape, and the legal industry stands to profit handsomely through the legitimacy of cryptocurrency as an asset class. Law firms and attorneys already make money hand over fist in the current financial structure. Every prospectus that is created, every filing, every regulatory document both for regulators and for the entities that must comply, these documents are all created, amended, reviewed and approved by attorneys. The amount of billable hours captured by attorneys just with the current stocks, bonds and mutual funds is big enough to support an entire industry. Adding an entire new industry of cryptocurrencies would expand that industry larger and faster than any other mechanism. Attorneys absolutely want a new asset class and client base to service.
Regulation also creates a huge opportunity for attorneys in another way, through violations of those new regulations. It's not just creating the documents, but operating in line with the ever changing regulatory landscape. Billable hours by way of legal consulting and advisement will be extreme. An ounce of prevention is worth a pound of cure, and no one wants you to believe this more than attorneys who can capture fees covering every conceivable preventative measure with companies who are willing to pay for that information.
If an attorney's client gets in trouble for a regulatory violation, let the fee collection begin! Who is going to defend the company or individual who finds themselves with a violation and a court appearance date? Attorneys of course. Crafting legal defenses, doing research and executing the actual legal defense has made attorneys in the financial industry extremely rich, and the cryptocurrency boom is going to add to their coffers in a big way. Even if a company or individual ends up settling and paying a fine, you can bet there will be an attorney by their side advising them every step of the way. This is of course a good thing. Legal counsel is extremely valuable. The fact remains that widespread adoption of cryptocurrencies and a maturity of the industry is a wonderful thing for the legal community.
The point is that attorneys are key at every stage of the life cycle of cryptocurrencies. It starts with the creation stage which would include things like advising on whitepapers, creating the prospectuses and ICO paperwork and whatever other regulations are passed as requirements for new groups in the crypto space. The pre-emptive stage is next. This stage consists of fillings and paper work that all serve the purpose of preventing problems later down the road should trouble arise. This includes setting up legal entities like LLC's and corporations to provide legal protection. Attorneys are also critical during the operation of the crypto business itself- this would including consulting work, M&A, executing large deals, filings and court appearances. The final stage of the life cycle would include combative and closure issues. Trials and court appearances, settlements, M&A as well as IPO and other exit paper work. On the personal level a huge area will be around estates and transfer of ownership. Ultimately a developed, mainstream and mature cryptocurrency industry is something attorneys will benefit from in a huge way- even attorneys that have nothing to do with crypto will benefit as the allure of the greatest industry of our day will certainly pull some of the best and brightest attorneys away from other legal disciplines making opportunity more abundant for attorneys who resist the chance to be involved in crypto.
Accountants, much like attorneys stand to profit handsomely from a mainstream and mature cryptocurrency industry. Much like attorneys, accountants stand to benefit from the onslaught of new regulation as well as changes to accounting codes and financial laws. The more robust and complex the regulations that are rolled out, and the more complicated and thorough the tax laws with respect to cryptocurrencies, the more dependent individuals and corporations will be on the accounting industry.
This is true with personal finance and the financial industry as well. Capital gains are taxed at a different rate than ordinary income and firms line up around the block to help people as well as the financial industry with their taxes. As regulators step up to create tax codes for crypto, accounting firms will be right there to offer assistance to any and all comers. The more uncertainty in the tax code and the more flux in the code from year to year, the more we will all need to have good accountants on our team. The current landscape for crypto has every regulatory agency making some type of jurisdictional claim to crypto assets. We will count on our attorneys and our accountants to steer us in the right direction. We will not only want them to steer us in the right direction, but we will really want our accountants to sign off on whatever actions we take. Of course accountants will be able to charge consulting fees and advisory fees along the way as well. Ultimately, the cryptocurrency community will depend on accountants to help them with their projects and this will lead accountants to want blockchain technology and the crypto industry to go mainstream, thrive and be successful. Complicated tax codes and regulations couldn't hurt from the accountants perspective, just drive more fees and billed hours.
What is the point of all this? To tell you in no uncertain terms that cryptocurrency will be big business. Big business that will create huge fortunes for individuals, but also create an entire industry. Oil, automobiles, manufacturing... these are all mega industries that spurred from the advent of technology. "Tech" as we know it today including software, hardware and communications are all massive industries which have created nearly unfathomable opportunity and profits for companies, people and governments. Now, cryptocurrency and blockchain could be massive industries just like those prior mentioned advancements created industries in their own right. With a new source of money and new source of opportunities that crypto could create for governments, regulators, companies, accountants, lawyers, bankers, traders, brokers and nearly every existing industry, do you think these industries will actually want to squash the rise of cryptocurrency, or do you think they will do everything they can to help the industry thrive and grow? Im convinced it's the latter, and we are in the first quarter of a massive 4 quarter game.
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