About a month ago I wrote about how Bitcoin websites such as BTC Jam provide a unique opportunity for me as a small and poor investor to be able to increase my funds and better my financial picture by allowing me to access on a much smaller scale the same types of financial tools currently only available to the rich–that is, those with significant disposable income to invest.
But this morning when I logged into my BTC Jam account and attempted to sell off a note to a loan I believe will default, I was informed that the site management had made the difficult decision to no longer accept investments from people in the Unites States. I currently have an autoinvest program set up which reinvests funds I get from current loans by putting them into new loans. According to BTC Jam, I will be able to continue to stay in the loans I’m in, but will be unable to invest in any new loans.
Needless to say, that was a huge disappointment. I just lost access to an amazing financial opportunity just because of where I live. In order to continue taking advantage of this opportunity I would need to create myself a whole new BTC Jam identity from an IP address coming from a country the site still allows. I am not interested in going through all that trouble. Quite frankly, I shouldn’t have to hide who I am or where I live in order to be able to invest my own funds.
Unfortunately, that is not how the US Government and financial regulatory agencies see it. I honestly do not know too much about how the financial industry is regulated in the US. I do know that at least according to public explanations, the regulation is meant to protect people like me from losing everything in financial scams. I am certainly all for the government monitoring and prosecuting people or entities who deliberately scam people. I also believe intentional scamming would fall under the general category of theft. The more the deliberate scammers can be removed from the financial ecosystem the more likely it is that investors will put their funds into worthy vehicles, benefiting everyone involved. The part of regulation that I take issue with is when the intention to protect me goes too far, when it crosses the line from protecting me from intentional scammers into limiting my viable financial options.
Yes, the government has a role to play in removing criminals from the playing field. But to what extent is it responsible for protecting me from my own bad choices? I will be the first to say that when I initially got into Bitcoin I made quite a few bad choices. In fact, at one time I lost everything I’d amassed up to that point, and it was a painful loss. And yes, I lost it to an intentional scammer, one who probably got away with it. That was when I discovered the Bitcoin Forum and learned I was not alone. Lots of people had lost considerable amounts of Bitcoin to various scam websites and endured being called idiots by the people who had enough experience to know which types of sites to avoid. We idiots who got scammed either learned quickly and picked ourselves back up and made smarter choices about where to deposit our Bitcoin next time, or we left the cryptosphere in disillusionment. I am happy to say I survived the experience and went on to both gain and lose plenty more Bitcoins in the process of navigating through the new world of tremendous financial opportunity and peril.
The fact that most Bitcoin entities at that time ran below the regulatory radar in the US meant that I was not limited in the opportunities I wished to pursue in my endeavors to grow my stash of Bitcoins. Today, some of the very good entities have pursued compliance with US regulation at great cost, and I generally consider the pursuit of compliance to be a good sign. However, because of the great cost, some like BTC Jam have made the decision to simply not do business in the US. Others, like Poloniex, have decided to not do business in the states with especially high regulatory burdens such as New York.
This is unfortunate. It goes beyond protecting American consumers from financial theft and in effect steals from them by shutting them out of financial opportunities. Let’s suppose that my rate of return on BTC Jam is fifteen percent annually. I currently have about one Bitcoin invested in it. At today’s price one Bitcoin is worth a bit over $400. We’ll use $400 as the Bitcoin price to keep the math easy. This means that this time next year I will have my $400 Bitcoin plus $60 in my rate of return. But once the loans I am in mature I will not be able to reinvest the funds. Assuming all the loans mature in one year and I reinvest everything, then the amount I could have earned the following year had I been able to reinvest would be $96. That $96 I now cannot earn is not just a lost opportunity; it can also be viewed as an effective theft against me due to the heavy burden of regulation. Next year, the US government will effectively steal $96 from me in lost ability to invest my own money.
Ninety-six dollars is a small amount, but for me it’s significant. It represents groceries for a week, my phone bill for a month, a new winter coat, or even better, some money I could put towards paying off some debt I owe in the fiat world. Add to that the interest I will continue to owe on the debt from not being able to pay that $96 as an extra payment on the principal and that amount grows bigger each year. Or, if I’d decided to stash that $96 into a fiat retirement account, how much will I lose in interest there? Or how much will I lose from a second year of not being able to reinvest it in BTC Jam loans?
The BTC Jam 15% rate of return is not an unreasonable projection. One reason for converting some of one’s fiat funds into Bitcoin is that the rates of return on legitimate investments tend to be better overall than fiat rates of return. There are of course increased risks from the volatility of the market price of Bitcoin itself, but the actual Bitcoin investment rates of return are better. Where in the fiat world am I going to find a place to stash a mere $96 to earn a 15% rate of return? Traditional savings accounts have a 1-2% rate of return (being generous here), and that rate of return may increase to 3-4% once my balance reaches $15,000 or something ridiculous like that, and even that doesn’t come close to the 15% rate of return I had just until a few days ago. I know there are some investment vehicles in the fiat world that pay higher rates of return, but… you guessed it, you need an initial investment in the thousands of Dollars. I am priced out of all those opportunities.
My purpose in writing all this is not to knock legitimate governmental regulation. I am by no means an anarchist. I do not believe just anyone with an Internet connection should be able to set up a website which makes false claims, collect gullible people’s funds, and then run off with no trace. I am very glad that we have laws against that sort of thing and that at least some of those perpetrators are hunted down, prosecuted, convicted, and punished. It’s not a perfect process but it does have significant deterrent qualities, resulting in me having fewer scam opportunities to sift through.
However, I do believe that honest regulators need to take a close look at the regulations they pass and ask themselves this question: Does this rule actually prevent financial crime, or does it result in effectively robbing the poor of legitimate financial opportunities? The laws which truly prevent crime should remain and be improved, and plenty of resources should be dedicated to enforcing them. The rules which rob the poor need to all be repealed. The ones which do both need to be suspended until they can be rewritten to only prevent crime.
Legitimate companies such as BTC Jam should have no problem operating in the US and I as a US resident should have no problem using their services in a legitimate way to improve my financial situation. Intended or not, to prevent me from doing so is a form of theft. Ironically, because I am not rich, I can not afford to be the victim of that theft. Who’s being protected here? Not me.