The US Securities and Exchange Commission has revealed daring plans for investment in private companies, with the potential to open the doors to Main St. in a way that could prove more inclusive to mom and pop investors than any regulation in years. Read between the lines, though, and it could also be the basis of a philosophical approach to cryptocurrency regulation.
The SEC is considering revolutionizing the rules so that small investors are no longer sidelined – SEC Chief Jay Clayton said that the ideas were aimed at helping retail investors who want to take a small stake in a company.
Can Crypto Follow This Path?
Clayton wants to give access to the private markets and better deals, without sacrificing investor protections. His focus may be on the business world, but this is a blueprint that crypto can use as well.
“The private markets are awash in capital these days,” he told the WSJ. “The question is, who is participating?”
Apart from the significant hurdle of regulation, there is little difference between this kind of private investment in the business world and the cryptocurrency ecosystem. So, if the SEC clears a path for private investment in big and small businesses, it could also indicate a preference for a regulated cryptocurrency market.
A ‘concept release’ white paper will outline the plan and from there the SEC will listen to the advice of the public and big business.
Clayton continued: “It came from doing the job and recognizing that, for retail investors, the opportunity set beyond the public market is pretty low, pretty costly and pretty risky. But people want that.”
Big Names We Can’t Invest In
In the traditional business world, where the SEC is actually looking, the likes of Uber, SpaceX and Airbnb are off limits to most retail investors right now. That’s because the regulations require a public listing. These are big-money, exciting companies and they are simply out-of-bounds for the private investor.
Current rules allow wealthier, accredited investors, to participate in securities offerings, but the bar is high and the paperwork can be onerous.
More than $448 billion was raised by private companies in 2017, according to a recent McKinsey study, while 91% of partners claimed that the returns on private investments were better than those of the publicly-listed companies.
The number of publicly-traded companies is falling, too, and public interest in the Stock Exchange is flagging as the Millennials look to the fast-moving crypto markets. The SEC is clearly looking for ways to breathe life into the economy and if it can clear the way with one set of regulations, then it’s taking out two birds with one stone.
A New Method of Funding
Clayton is widely-seen as business and investor-friendly and his latest suggestion could give companies the freedom to raise funds without having to go through a public listing.
That’s possible right now, but it’s certainly more complex and largely relies on individual investors ploughing in large amounts of funds.
This potential change in the rules could turn the Average Joe into a small-time angel investor – a key promise of cryptocurrency, and one that has clearly found traction in financial markets globally.
But most importantly, it might open the back door to cryptocurrency regulations that the whole industry is crying out for.
A clean set of rules will help everybody in the long run and it doesn’t matter if they’re written for Ethereum and bitcoin, or Tesla and Uber.
If cryptocurrency can slide in on these regulations, it could change the whole investing landscape overnight.
The author is not currently invested in digital assets.