Meme Coins, Gambling, and Crypto Regulation

JThe Wall Street Journal published a helpful dive into meme coin trading on Thursday. It was attached to a token called “Will Smith slap inu” which appeared, leapt and imploded within days early last week after the infamous Oscars smash. “Meme coins” are usually recycled codes renamed to capitalize on this type of short-lived news cycle. The Journal correctly describes coin trading as a high-risk activity with little or no broader social benefits.

First of all, I’m compelled by professional pride to point out that if you read the Journal for crypto coverage, you get the story more than a week late – we warned Will Smith slap inu and similar meme pieces on march 28. Although in all honesty, why wouldn’t a story about meme pieces be a forgery?

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Credit where it counts, the Journal adds depth to the story, especially by speaking directly to meme coin traders. But the report comes to the same conclusion as last month: “Almost all analysts agree that participation [in meme coin trading] is essentially a form of gambling.

Meme coin traders who are aware of the game they are playing aim to enter and exit at precisely the right time within a window of, in some cases, less than a day. At the end of the almost inevitable rise and fall of a memecoin, those who time their trades well make money and everyone else loses.

As one analyst told the Journal, this is all a “zero-sum game,” in which wealth is simply transferred between participants. No wealth can be created because meme coins offer no innovation and have no real use (this gets complicated in cases like shiba inu [SHIB] corner, where a formerly meme-based community seems to be at least building some real functionality).

On the spectrum of crypto assets, these are the real garbage. This simplicity makes them very useful for thinking about crypto and financial regulations. Treasury Secretary Janet Yellen outlined the Biden administration’s agenda on crypto on Thursday, saying broadly that the rules for the new technology should be similar to those of the traditional financial system, including prioritizing the protection of investors against fraud.

Even though well-informed crypto insiders may be tempted to deride coins as a fun, fringe oddity of space, most are unambiguously frauds and they cost people money on the basis of an implicit or explicit deception. Not everyone who buys a coin knows they’ve really bought a ticket to a limited-time augmented reality casino that can wipe them out faster than they can blink.

See also: Investing in Meme Coins? 3 Things Every Crypto Trader Should Know | To learn

Those with the slightest insight may find it hard to believe that anyone would honestly think “Will Smith inu” was an asset to buy and sell, but the human experience is a rich and varied tapestry. Some people in this tapestry are more frayed around the edges than others – more vulnerable, more desperate, less educated. It is their money that ends up in the hands of the lucky and savvy meme creators and meme coin traders.

Ripe fruit

So the question becomes: do we, as a society, have an obligation to protect people from their own urge to gamble? At first glance, “no” seems like a convincing answer for several reasons. First, because freedom and bald eagles and semi-automatic handguns. I believe I should be able to engage in reckless speculation if that’s what I want, because this is America.

Second, and more concretely, a true free market for petty cheats is also a potentially incredible educational experience for millions of people. Losing money really does have a way of sharpening critical thinking, or at least tailoring people to their own appropriate level of risk. Over a longer period, an unregulated market populated by such investors – once exhausted but now knowledgeable and risk-aware – would produce stronger macroeconomic results than a market dependent on a central regulator to warn against bad bets.

Unfortunately, this is an unrealistic view: even supposedly sophisticated “accredited investors” with access to less regulated traditional financial markets like private equity and hedge funds are taken over by scammers in good suits all the time. Marlet. A lucid analysis would admit that unregulated securities markets, particularly markets in which there are no controls over the issuance of assets or penalties for misrepresentation of assets, are going to be plagued by this which amounts to theft disguised as speculation.

Moreover, it’s not just about individual losses by misinformed or unlucky people – there are also wider social effects to consider. By analogy, we already know that traditional gambling not only has devastating effects for people with addiction problems, but can also harm society as a whole. Research increasingly indicates that higher levels of gambling lead to worsening public health and other population-level harms, as problem gambler behavior and losses harm family and community, not just themselves.

The Meme coin trade seems likely to be implicated in similar damage. This would make their repression a matter of social impacts, not just individual freedoms.

Meme coins are a relatively easy problem to solve as the United States continues to develop its regulatory approach to crypto. Some crypto issues will require new rules and clarifications, such as whether miners are financial agents. But issuing a title and promoting it under false premises is already illegal, and prosecuting issuers using existing rules is exactly the kind of “technology-neutral” approach Yellen argued for.

See also: How Crypto’s Regulatory Scene Could Change in 2022 | Opinion

What is essential here is that the focus is on enforcement rather than new technological restrictions, surveillance or other forms of prior restriction. This is important to protect true innovation.

But there is no consistent argument to make that overt fraud helps improve the crypto industry, or society as a whole. Finding and punishing the senders of manipulative meme pieces like Will Smith slap inu may not always be easy, but these are exactly the kind of handy fruit regulators they would focus on if they really wanted to protect average speculators.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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