/biz/ - Business & Finance

As a general rule, if a government does not squash a pyramid, ponzi, or similar scam right when it starts, it will wait for it to collapse before going after the culprits.

If the government tried to stop such a scam while it was in full bloom, it would have to deal with millions of totally mad citizens, including some with deep pockets and considerable political power, who would be absolutely convinced that it was the government, not the scammers, who caused their losses.

The government officials responsible for the ban would get death threats, possibly serious, and would likely be removed by politicians willing to capitalize on the public outrage.

The scammers themselves would of course claim that the scheme woudl have worked if only the government had allowed it to work, and will remain heroes in the public eye. Thus it was that Sergei Mavrodi got elected to the Russian Parlament, and James Ray Houston got 15% of the votes in the 1974 Nevada gubernatorial election, as an independent candidate.

As an investment, bitcoin is totally like a penny stock scam: a financial instrument with no intrinsic value, being sold to unwary investors with the argument that its price, having increased bazillion percent in the past, is certain to increase even more in the future.

The US government should view bitcoin investment as a penny stock scam, and should handle its pushers -- like Andreas, Silbert, Ver, and the Winkles -- just like it treated Jordan Belfort and other boiler room operators.

However, doing that at this point would be political suicide. So the SEC denies its responsibility by saying that bitcoin is a commodity and not a security -- using a fuzzy definition of security, interpreted in that way. The CFTC says that it can only regulate tradings of commodity futures, not of the commodity itself; and besides does not have the power to outright ban futures products, but only to regulate their terms.