I’m already on the record with a position that, broadly speaking, lawmakers and regulators don’t know what they’re doing. But that doesn’t keep them from making rules that businesses have to contend with.
Two weeks ago, I attended Cryptolina, a Bitcoin-focused conference that drew speakers and attendees from around the nation including former Director of the U.S. Mint Edmund Moy, and fourth generation venture capitalist Adam Draper. Figuring out how to deal with regulation was a recurring theme at the conference, and several different tactics were discussed.
At one panel, a lawyer focused on Bitcoin-related matters advised entrepreneurs who are unable to receive guidance from lawmakers to attempt to self-regulate by implementing reasonable and fair policies that might eventually become law. He noted that demonstrable adherence to these policies and clear intent to cause no one any harm would likely be looked upon favorably and perhaps produce the desired outcome: a No Action letter.
To be clear, this is some Zen hand-waving, particularly coming from a securities lawyer:
“How should I proceed in light of the current regulatory environment?”
“How do you think you should proceed?”
“. wait, what?”
“Do what you think the rules should be.”
“Ok. How much am I paying you again?”
It’s a truly bizarre situation where entrepreneurs are expected to act now and be judged later by a group of people with a poor track record of accurately identifying and rewarding appropriate behavior. I mean, these folks can’t even provide clear answers to easy questions, let alone hard ones (see: software patents, gift rules for financial advisors, equity crowdfunding, etc.)
Similar advice was dispensed in other panels – speakers advocated taking the better to ask for forgiveness than permission – approach, with a disclaimer to not do anything stupid or unethical. It was noted that, until you reach some sort of scale, you won’t be on the radar of regulators, so push off concerns about compliance. That seems perfectly reasonable so long as you don’t invest years of your life and much of your bank account into a venture only to see it shut down based on a regulatory decision (see: Aereo, Napster, Justin.TV, PokerStars, etc.)
Really though, what are the other options? Panelists who promoted legislation related to the Jobs Act, and equity crowdfunding in particular, advised creating a coalition to lobby lawmakers. It should be made up of people who represent a large portion of the community, not just stakeholders who stand to benefit directly from the bills. Turning Bitcoin into a populist movement that benefits many groups is key to getting traction politically, they said.
The challenges with this approach are that it requires time and personnel, two of a startup’s most precious and limited resources. Focusing on policy instead of product can help propel competitors forward even if legislative efforts are successful.
I’m hesitant to even mention the final option because it feeds into the negative perception around entrepreneurs in evolving regulatory fields, Bitcoin in particular. This option is to simply ignore regulators and operate in anonymity. A woman who attended the regulatory panel and understandably grew frustrated with the guidance (or lack thereof) provided by the panel went on a rant during Q&A, saying what amounts to: “We don’t need you. You can’t prevent Bitcoin from existing or people from sending it, so good luck trying to regulate it.”
The crowd cheered her sentiment, but I found it immature and counterproductive. Another major theme of the conference was the importance of mainstream education and adoption, so a dismissive attitude toward regulators only sets back those efforts.
I’ll end by reluctantly agreeing with the advice of the lawyer parodied above. Lobbying is too expensive and time consuming; ignoring laws is not a viable long-term strategy. The only approach that makes sense is the one that makes no sense.
Use your best judgment to create the regulations you think should exist. Document and adhere to these rules. Then, hope that you get lucky and the SEC sends you a No Action letter instead of a Cease and Desist letter.
I guess no one ever said that starting a company was a safe move.