Zerohedge just posted the most important headline in the crypto-space this morning.
There comes a point where all the power in the world along one vector is useless along another. While Koreans may be trading on these cryptocurrency exchange how are regulators in Korea going to stop them from trading on exchanges in the U.S. or China?
They can make deals with the U.S. and China to force those exchanges to ban Korean IP addresses and require accounts to Know-Your-Customer (KYS), but then the exchange can simply move their servers to another jurisdiction that doesn’t support U.S. or Chinese KYS laws.
In my recent article at Crypto-News.net I talk about this very problem and how U.S. regulators are simultaneously clueless about the technology and hostile to the very people they are supposed to be ‘protecting and serving.”
The real problem is that these authorities create uncertainty with their gross mismanagement of assets and real property. Their arbitrary and onerous regulations create literal fiscal “sh**holes” around the world which we have to dig ourselves out of.
Then they get angry when we create solutions to avoid them. Enforcement of rules is always capital destructive. This is the fundamental problem with all forms of central planning. And it is the curse of the authoritarian mindset to believe the rules are more important than their effects on people. KYC laws are a classic example of how one country abuses its dominant position in the world marketplace to force open the books of foreign banks to hunt down tax evaders.
The bolded point is the most important especially when it comes to Asian societies which are far more rigid it their enforcement of societal ‘rules’ and ‘norms’ than we are here in the West.
Though, trust me, the Progressives are doing a very credible job of moving the U.S. and Europe in that direction, all in the name of the common good.
The Lust for Rules
But, cultural differences aside, the lust to rule is endemic in human nature. It is a trait that shows up regularly and it is attracted to the kinds of jobs which allow them to express that desire in a way that rewards them handsomely as opposed to the ass-kicking they richly deserve for stealing other people’s money.
So, seeing high-level Korean government officials actually admitting their powerlessness to stop unwanted behavior by their subjects is telling. I wish American regulators would do this.
Admitting you have a problem is the first step towards overcoming that problem.
And the problem for these governments is that they feel entitled to all of the tax money their rules say they are.
When, in fact, they are, like everyone else, are only able to capture the revenue they can persuade people to give them. Sometimes that persuasion comes with more than just the idle threat of jail, torture and imprisonment, such is the nature of things.
But, if they were to just finally admit defeat then they can issue rules for cryptocurrencies that are consistent with existing tax and tort law and begin collecting some of that revenue they think they are entitled to.
The uncertainty surrounding tax policy and ‘legality’ is what is driving innovation in the sector. And it will continue to push development capital into projects that are hostile to or pay lip service to KYS and Anti-Money Laundering (AML) laws.
Half of Something is Better than All of Nothing
Because the more these guys refuse to admit their whole
extortion tax system is terminally vulnerable the quicker we will build systems to prove it to them.
So, it’s better to just bite the bullet, make the rules clear and collect what you can before the lights go out.
Because until we get rid of politicians like New York Governor Andrew Cuomo the ending is pretty obvious to see.
Cuomo just passed the dumbest tax law in the history of dumb taxes. A 17% Fairness Tax to make up the shortfall by taxing Wall St.’s carried interest ‘loophole’ to make up for the lost revenue from President Trump’s Tax Cut plan.
From Cuomo’s Press Release
The legislation would also impose a “Fairness Fix” to close the carried interest loophole under New York State’s tax code. By imposing a 17 percent “Fairness Fix,” every hedge fund manager working in New York State – including those living outside of the state – will be required to pay their fair share and losses under the federal tax code will be compensated. This proposal could raise nearly $1.1 billion annually and help ease the impacts of the federal tax plan.
The legislation puts forward a comprehensive, regional approach to addressing the carried interest issue, taking effect only if Connecticut, New Jersey, Massachusetts and Pennsylvania enact legislation having substantially the same effect as this bill.
The Stupid. It Burns.
All this will do is accelerate the outflow of New York’s tax base by making it even more expensive to do business there. Companies will relocate out of New York’s Byzantine corporate laws, do deals in other states and simply move to tax-haven states like Florida and reap multiple levels of benefit.
The same is very true about cryptocurrencies. Wall St. wants desperately to make it more expensive to trade Bitcoin than trade stocks. They want to keep all of the pie to themselves. But, it’s not possible.
Decentralized exchanges like Komodo’s BarterDEX are simply the future of trading. As these systems mature and their code becomes more battle-tested there will not be a way for regulators to even know who owns what or how much if someone doesn’t want them to.
And the more onerous the rules, the more people will seek to avoid them.
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