In the WSJ, Andy Kessler asks who is going to pay for the $1.5 trillion in crypto losses?
After every market downturn, the class-action crowd canvasses the carnage looking for whom to blame—and then sues the pants off them. With so many stocks down 80% to 90%, such as Carvana and Robinhood, the pickings are plentiful.
But most public companies have smart lawyers who sprinkle protective legalese like “safe harbors” and pad their registration statements’ risk section. Most securities suits are settled, basically to pay lawyers to go away.
But there is more: crypto craziness. According to the Federal Trade Commission, 46,000 people have reported losing $1 billion in crypto to scams since January 2021.
- Bitcoin down more than 50% since its 2021 peak,
- Ethereum down 65%,
- XRP 78%.
- The Luna token is down from $116 on April 5 to essentially zero.
Who Is Liable for Crypto Trading
According to the WSJ, Binance, FTX, Coinbase, Kraken, Bitfinex, and Crypto.com are some of the largest exchanges for crypto trading. Is anyone liable?
Andy Kessler admits to not having a big enough spreadsheet to add up the total decline in value of all 79-digital assets since their peaks.
… but XRP alone represents around $65 billion lost. My guess is the total loss is $100 billion for all assets, although not all of it traded on Coinbase on the way up. Once worth $100 billion, Coinbase is currently worth $13 billion with about $6 billion in cash on hand. Losing could seriously hurt.
Mr. Kessler then goes on to ask, are Ethereum, XRP, or Luna unregistered securities?
Unlike bitcoin, which is a decentralized dream, the others are the works of known enterprises that pitch the use of their products for payments and smart contracts. XRP claims: “Our proven technology and global network enable remittances, SME payments, disbursements and treasury flows.” It charges fees to enable these services. My sense is that XRP’s value is derived from enterprise profits resulting from the work of others. Howey wowie!
Ethereum claims: “Smart contracts are a type of Ethereum account. This means they have a balance and they can send transactions over the network. However they’re not controlled by a user, instead they are deployed to the network and run as programmed.” If an entity promotes its assets as products to do payment transfers or smart contracts, doesn’t that make those assets part of a profit-seeking entity run by others?
A jury will decide, promises Mr. Kessler, but then warns, if it “looks like a duck and quacks like a duck, then it’s a security.”
$500 + billion in non-bitcoin investor losses will likely attract a lot of class-action lawsuits.
Lawyers, not coders, might determine the future of crypto.
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