Speaking truth is often unappreciated. The answer to “does this make me look fat?” is never “yes, because you are fat to begin with.”

As business lawyers, one of our most difficult tasks is to discuss weaknesses in a client’s company or business model. Nobody wants to hear that their baby is ugly.

In the digital world, speaking ill of blockchain or digital currency is the one truth-telling act guaranteed to bring shrieking protests and attacks on the speaker’s intelligence. An entire class of people is emotionally and financially bound to success of this technology, and a separate class of people is financially invested in keeping them that way. They seem to understand that skepticism or apostasy to the gospel of bitcoin/blockchain could chip away at public confidence, so every suggestion of excessive hype must be met with immediate and angry resistance.

Let’s concede up front that the blockchain is an interesting option for recording and accounting some types of assets. But as my colleague often observed, “passing a law encouraging use of the blockchain [as some states have done], is the same as passing a law to encourage Excel spreadsheets.” The blockchain is an administrative tool with serious limitations and few natural applications. It is not now and never will be the world-changing technology seeping into every corner of our lives that many of its cultists would have you believe.

And let’s concede that lots of people have made lots of money on bitcoin and other cryptocurrencies – just like lots of Dutch made gilders on tulips before the mania ended, and lots of late 20th century collectors made dollars hoarding beanie babies before the crash arrived. It is difficult not to see the recent spike in Dogecoin sales as a working example of the greater fool theory. Since the dawn of sophisticated investment, genuinely enthusiastic people egged on by manipulative, immoral people have bid up silly classes of “assets” and made money by getting in early and selling out as the value rose. The fact that some people made money in these manufactured bubbles does not mean that the core asset was truly worth anything at all.

Being an asset with no inherent value that is being bid up in price does not make that asset a “currency.” Can you buy lunch, coffee, a hotel room, or a new shirt with Dogecoin? Not easily and only in a few places. And, you could trade tulips or beanie babies for lunch or a shirt just as simply in most cases. At least those latter assets have a separate function. 

These digital assets are hyped by hucksters, manipulated for the benefit of unscrupulous market-makers, and snatched up on the strength of sheer belief unsupported by logic. It is telling that the only significant “currency” application for these assets has been for criminal enterprises looking to hide their activity. Cryptocurrency is the perfect asset class for our age where huge numbers of credulous people not only believe ridiculous conspiracy theories, but they send money to the liars in support.

We have not even discussed the problems digital asset investors might have if the website storing their digital assets closed, disappeared or lost all its assets.  These are not regulated entities and there is no reason to believe they will continue to make the assets available, even if you always remember your key for reaching your assets. Your bank closes, and the government insures much of your money. If your crypto-crypt closes, there is famously nobody backing it up. The opposite of bitcoin’s mantra is true – lack of government backing is a bug, not a feature.

Billions of dollars in these digital “currencies” have been lost because the supposed owner couldn’t find the right encryption keys or threw away the computer that held it. The value can simply disappear or become unreachable in so many ways. 

In a preview of many law suits likely to follow, six months ago the U.S. Securities and Exchange Commission (SEC) charged two executives from Ripple Labs with selling more than $600 million in unregistered digital assets. The SEC, a paragon of common sense when it comes to categorizing investments, defines “cryptocurrencies” like Ripple’s XPR digital asset as unregistered securities. The SEC complaint alleges that Ripple failed to register their offering of XRP and failed alternatively to satisfy any exemption from registration, in violation of federal securities laws.  We were told that cryptocurrencies were an entirely new asset class that couldn’t be regulated.  We were told wrong.

Earlier this month, Gary Gensler, the Chair of the SEC called on Congress to create a regulatory framework for cryptocurrency exchanges. At the moment, no regulator is clearly charged with managing them and keeping them safe for investors. In Congressional testimony Gensler noted that naming either the SEC or the Commodity Futures Trading Commission as direct regulator for crypto exchanges could “instill greater confidence. Right now there’s not a market regulator around these crypto exchanges. And thus there’s really not protection against fraud or manipulation.”

Even cryptocurrency exchange company Coinbase has called for regulation of its market. An exchange like Coinbase takes significant risk when it chooses to list a new crypto asset on its platform.  If Coinbase knew which regulator to consult, that risk would reduce considerably. Coinbase delisted Ripple following the SEC’s lawsuit, prompting a selloff that destroyed more than 60% of the Ripple asset’s value. Uncertainty in regulation not only allows asset fraud to continue unabated, but it shakes the ground exchanges and professional trades stand on.

According to the Wall Street Journal, SEC Commissioner Hester Peirce “has set out the clearest position within the agency for rules on cryptocurrency issuance. [S]he released an updated plan for a “safe harbor” that would exempt digital currencies from most securities regulations during a three-year development period. The plan would allow issuers to develop their networks and let buyers trade new currencies peer-to-peer, subject only to the antifraud provisions of the 1933 Securities Act.” This plan recognized the large sums of money in this system while providing some time to construct an appropriate regulatory regime.

Much profit has been created out of thin air in crypto investments. Many, many people have also lost money in predictable ways, with many more to follow. Any time that someone tried to sell you “the future of money” check your wallet to confirm it has not been lifted from your pocket. That’s a truth you can rely on.