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The creation and rise of cryptocurrencies can be tied directly to the 2008 financial crisis. Released in 2009, Bitcoin and its underlying blockchain technology was viewed, and marketed, as a way to stabilize the rampant culture of speculation that plagued Wall Street, particularly with derivative and bundled offerings. But what has taken hold in the cryptocurrency market place in recent years stands in stark contrast to these early utopian promises. Instead, a new batch of nefarious investors are hijacking the technology for their own interests.

The reason blockchain was an effective counter-narrative to the 2008 financial crisis is that the technology works on the presumption that no one can really trust anyone, and the only way to prevent fraud is to make all transactions universally available on a “public ledger.” This concept taps into a libertarian model of self-policing that works around the need for government regulators and major financial institutions.

Since the launch of Bitcoin, cryptocurrencies have expanded at a feverish pace. To date, there are over 3,000 variations of blockchain technologies (into which billions of dollars have been invested).

The latest trend in the cryptocurrency market are the initial coin offerings (ICOs), also commonly referred to as “token sales.” ICOs raise funds through a crowdfunding process similar to stock purchasing, where instead of being issued a traditional security, investors purchase a new crypto-coin which is frequently tied, directly or indirectly, to a potential money-making venture. While a small subgroup of tokens, called “utility tokens,” do not possess the economic features of a security, and should not be treated as such by regulators, many other tokens sold in ICOs resemble traditional stock.

These stock-like tokens must be held accountable by a regulatory authority.

I’m bullish on the long-term view of ICOs. They can eliminate the need for companies to engage outside agents to handle financial transactions and money transfers. They also allow companies to avoid exchange rates and transaction fees, as all returns can be paid out through crypto-wallets. Cryptocurrency tokens are transmitted quickly between consumers and businesses. And, by lowering or eliminating extraneous overhead costs, businesses can offer lower initial share costs and open the option of investing to more individuals and at lower initial buy-ins. Most importantly, ICOs could completely revolutionize the existing way consumers and investors perceive basic concepts of company stock, ownership, and valuation.

But like the intrepid housing market presaging the 2008 financial crisis, below the surface of flashy dollar signs is a rather jaundiced reality.

A recent report from Chainalysis, a New York-based firm that analyzes transactions and provides anti-money laundering software, revealed that not only are one out of every 10 ICOs fraudulent, but some 30,000 investors have fallen prey to ICO cybercrime, with losses totaling over $225 million.

Many ICOs are similar to Ponzi schemes. They capitalize on hype and market frenzy, pulling in as many investors as possible to increase the value of the underlying cryptocurrency. Then, just as the value rockets upwards, the initial investors cash out or trade the tokens for other cryptocurrencies, all before the floor collapses beneath them. While the lucky few profit, the last ones out are left holding worthless digital code.

Worse still, there is a fundamental information asymmetry in the crypto-sphere. The major players – those who are plugged into various coin networks and the blockchain – are able to accurately speculate, in nanoseconds, on the ups and downs of an ICO, which leads to drastic price fluctuations, and allows some to function as de facto gatekeepers. This type of pumping and dumping, not unlike hyper day trading, may be a form of insider trading and illegal. But absent regulation enforcement, they can continue this practice unabated.

There is a cruel irony here: The short-sighted, profit-driven, Gordon Gekko-types of the world, now free of the reins of traditional intermediaries and at least temporarily out of reach of government regulators, can enrich themselves on the backs of the very people who turned to ICOs because of their distrust of Wall Street. Instead of addressing these pervasive issues, the gatekeepers will instead proselytize the disruptive potential of ICOs, all the while profiting from such lip service.

The lesson from 2008 is not that regulatory authorities are bad, it’s that they need to be enforced uniformly. Absent regulators, bad actors will penetrate markets and, out of their own self interest, ruin them for everyone else.

There are some signs of hope. The SEC recently issued clarifications. Still, this largely falls short of what is necessary to curtail bad actors. What a regulator like the SEC needs to do is bring stability and integrity to ICOs. This starts by eliminating the scams upfront and ensuring transparency in all transactions. Disclosure laws must be followed; adherence to their guidelines will help democratize investing. The result is that a broader, bespoke class will be able to participate in revenue sharing streams traditionally reserved for high-wealth individuals and institutional investors.

The regulations to achieve these goals are already in place. Perhaps, due to technical and design difficulties, they lack active enforcement at the moment. But the path forward for ICOs is clear. We need a regulator like the SEC to stabilize and mature the cryptocurrency market. This will ensure that investors are no longer being duped by self-aggrandizing gatekeepers and that the benefits of cryptocurrencies can finally be unleashed to the masses.

Justin Bailey is CEO and founder of Fig.

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