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’s actually illegal for you to get a decent entry point on privately traded companies. Maybe that’s why there’s 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.
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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’ve seen in this industry is simply 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. We’re 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’re happy to watch us buy overpriced bags from the hedge funds that they allowed to cut the line. It 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 $200,000. 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 middle class people to get ahead through investing. It’s not like their savings accounts will ever be able to catch up with inflation. Let alone the accredited investors that are allowed to get in early on companies with upside. 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-off-the-mill mutual fund. It’s put more hands in the power 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 it’s for our own good. That we should wait for our betters to vet the appropriate investments before we, the plebs, can invest. Because otherwise we’ll buy into scams and lose all of our money. Newsflash, dirty 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’ve seen in the traditional stock market involve some of the most trusted companies of their time. Earlier this year, we saw the stock for Facebook crashed 26% in one day, looking more like a meme coin than a publicly traded company.
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 the 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 all bailed out. This is because the stability of the system was more important than the lives of the little people. This is 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. Financial regulations that keep the system stable actually just keep most people 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. They don’t have the same opportunities to better themselves. The besties over on All-In Podcast regularly take shots at the accreditation laws and break down how ridiculous they are. And there’s really two easy ways to do it. One is have a test, and the other is, on the roads, we have a speed limit. So if you are a non-affluent person already, but you want to dabble in this, there’s a very simple way to do it, Chamath. I propose have a written test, just like having a handgun or a car test, a driving test, and then how about you can deploy 10%.
– It’s so incredible you just said this. You can allow an 18-year-old person to buy an AR—
– Give me the name of the gun. AR-15?
– 15.
– And a car and go speeding down the highway.
– But they’re not allowed to invest in Gopuff? Yeah, no. They’re too not sophisticated. You could shoot the bullets in the air while you’re going down the road.
– What is going on? Well, I mean, there’s no path to it. That’s the frustrating part. Like, in some places, it’s hard to get a gun.
– You’ve got to take an 8-hour test.
– Oh, my gosh! Other places, you can just buy them on the, wherever. You allow 18-year-olds.
– You can allow an 18-year-old to take psychedelics and marijuana legally,
– Yes. open in a market,
– Buy a gun.
– but they are.
– but they are not allowed to buy secondary shares of Stripe? No, they’re too.
And so there’s the stupidity of it. Well, here and here’s the other thing. You can have two different things. You have the test.
So now you know the person’s educated. But you could also say, “Hey, listen, whatever is on your tax return for the last two years, you can invest 10% of that a year in, you know, private companies.” 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’re often overlooked by accredited investors who are more focused on bigger companies. 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 promises 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 one of the first major use cases for Ethereum. We had, at the time, 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, allowed the average person good entry points on promising projects regardless of how much money they had in their bank accounts. 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 rap 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 into the news cycles 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’ve seen with Ripple Labs and 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’s 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 down the road. This is standard procedure in the traditional stock market. And it was one of the main things we were hoping to avoid in crypto. But there is a way to fix this. Make investing more open and equitable. You take a test, just like you would for your driver’s 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 as a general aptitude test for all citizens. The specialized license require various sponsorships from the SEC itself, from an employer that is an investment company, or from someone who’s already licensed that runs a private firm. 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 high school. This would create not just a wave of liquidity for the private market but would pull millions out of poverty, change the composition of the middle class
in America for generations to come. It’s such a simple fix that makes the intent behind the accredited investor law all the more obvious. To protect the elites and keep them at the top. 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 House floor. The idea is catching on, but it will take pressure from you and others to change the minds, put the SEC back in their corner where they belong.
This article is a transcription of a video made by BitBoy Crypto
Original video: https://youtu.be/6jV4NjSolKc
