Ahh, yes, regulation. Like when big exchanges lobby the government, then monopolize the market and do whatever the hell they want while charging high fees? Great idea.
What you want is an independent audit, not regulation.
Hey, at least when there's a bank run I (well not me, since I have no money in US banks) will see my federally insured $20k or whatever, even in the case of collapse.
The problem here is that regulation is not voluntary. So, for example, if I don't trust this exchange - fine, maybe I will only go to government approved exchanges. But then another fella may feel he trusts this unapproved exchange. It's his choice, why should I care? Why should I be forcing my concerns upon him through government, in the form of regulation? Because, of course, if regulation exists for exchanges, this other exchange wouldn't be operating and this other fella wouldn't actually have a choice.
So it's important to remember - insurance and audit are great things. But combine them with government policing and force and you have a regulation, which only leads to restricting the choices consumers have.
Because in the real world there's a huge amount of information asymmetry. Because most consumers are not informed (not because they don't put the effort but sinmply because they can't just look at the bank's books and decide whether they're well off), this asymmetry greatly affects a consumers decision to choose "correctly": it's not really a free market.
Obviously it depends on the regulations, but a lot of regulations are about making sure that there's at least a minimum bound in the "quality" of products offered, because of the asymmetry at play here. If there is none, we can end up with "bad" products(that don't seem bad because we're uninformed) crowding out "good" ones, and having the entire market be worse off.
The 2007 crisis was a perfect example of asymmetry causing markets to crash: obviously there's the whole aspect of consumers being mislead on their mortgages, but there's the even greater aspects of banks misleading each other! Because of the opacity of the market of derivatives (nobody knew just how invested everyone was in on certain obligations) no bank could make informed decisions on what to do with their positions.
If we don't restrict some choices in the short term, then we can end up with no choices in the long term. In areas of extremely high uncertainty, regulation (notably concerning transparency) is necessary to make the market freer (in the actual definition, not from the common usage of free=no regulation).
> If we don't restrict some choices in the short term, then we can end up with no choices in the long term
Is it a chant or something? We can end up with no choices. Or maybe we will end up with more choices. Can you prove it logically without manipulating data and suggesting it to be evidence? Because the 2007 crash you mentioned can be explained from a different point of view, completely different from yours.
I can also say "everyone being able to own guns actually increases overall safety and if you don't allow people to own guns, we may end up with less safety". Do you realize this sounds exactly like your argument?
I am not going to be the guy who figures out how to unify the world's economists.
I'm not saying that every instance of markets should be regulated, I'm saying that some markets in their unregulated form are not free, and can end up imploding on itself. You might argue that a market in that form isn't worth saving, but if a small bit of regulation can push the market in the right direction you can end up with a healthy market.
You're going to have to explain your last statement, because I don't get it.
Every economic argument will reach the point of some guy saying "A" and another guy saying "not A" anyways though, so might as well just stop here.
> Because in the real world there's a huge amount of information asymmetry.
True. And the "solution" of government financial regulation is to allow the people with more information to create compulsory regulations that benefit themselves.
Unless of course there was actually a big problem, like widespread bank runs. Even if the FDIC is able to magically create money (in cooperation with the Federal Reserve and/or US Treasury), the FDIC can't magically create wealth.
No. This should never be an excuse for finding a better solution because people would not want to look for it and because it is extremely difficult to undo a regulation put in place. You're saying regulation would work better than an independent audit? How so? Show me the mechanism.
I personally would be very much willing to pay for an audit of an exchange before I make the choice of which exchange to use. As many other Bitcoin traders. Who else do you think?
There were no companies offering Bitcoin exchanges audit because the industry is very young. Expect those companies to appear (unless regulators start messing up with exchanges). If they don't appear, it means there's not enough demand. If there's no demand for audit and government is still trying to regulate the industry, it means they're wasting taxpayers money on something taxpayers don't want.
If you have much trust in independent audits, I guess you've never taken part in one!
Auditors generally have no incentive to rock the boat, and might have a disincentive in the form of losing future business. And even if they're really thorough, most auditors are only in for a few days or weeks and don't have time to go through things anything like as thoroughly as people who work on them full time. And even if they're really thorough and have the time to go through everything with a fine-toothed comb, insider threats can be undetectable, like if the guy preparing the cold storage wallet to put in the safety deposit box makes himself a copy.
The only audit of an exchange worth a damn is the audit undertaken by reputable insurers who will guarantee my entire deposit.
Wasn't that what led to the mortgage crisis? Banks got to choose the "independent" auditors they used, so the market of auditors selected for those who overvalued the assets. When it became clear that the "independent" valuations were unreliable, the system collapsed at massive cost to the global economy.
Competition isn't a magic bullet. It amplifies perverse incentives just as easily as it amplifies legitimate incentives.
Maybe consumer demand requiring such a thing. Would you rather do "Bitcoin banking" with an institution that submits to third-party audits, or one that doesn't?
yeah like those people in Cyprus trusted their regulated banks, didnt save their depsoits did it, or in Argentina where capital controls exist and the inflation rate means your money is worht less every day, they are all regulated.
