Volume 20
Volume 20.1
Price Fixing: Regulating the Face Value Effect in Cryptocurrency
Edward Lee & Andrew Moshirnia
This Essay is the first in legal scholarship to identify the face value effect in cryptocurrency, a cognitive bias that affects people’s ability to understand how much they are really spending when using cryptocurrency. We call this bias the cryptocurrency illusion: people think they are spending less when the cryptocurrency is worth more than a U.S. dollar and, conversely, think they are spending more when the cryptocurrency is worth less a U.S. dollar. The former scenario — which can result in overspending with cryptocurrency — presents an issue of greater concern for policymakers. Using an experiment modeled on the past behavioral economics research of foreign currencies, our study found that people overspend when using a cryptocurrency that is stronger than a U.S. dollar, meaning that one dollar can buy only a fraction of the cryptocurrency, as is the case with Bitcoin, Ether, and XRP, the three most successful cryptocurrencies based on market cap. The ramifications of our study are profound. Although Congress has considered numerous bills to regulate cryptocurrencies and President Trump’s National Economic Council Working Group on Digital Asset Markets issued a 160-page report outlining a comprehensive regulatory framework for cryptocurrency and digital assets, none addresses the cryptocurrency illusion. Put simply, due to the face value effect that afflicts people’s spending in currency other than their home currency, people may engage in massive overspending in and with cryptocurrencies valued greater than a dollar. Because cryptocurrency is already being used in the markets for NFTs, loot boxes, and virtual items in popular video games, and is now being integrated into payment systems like PayPal and used in some real estate and retail transactions, the problem we identify is real, not hypothetical. And President Trump’s agenda of making the United States the “crypto capital of the world” portends greater adoption of cryptocurrency. To address this problem, we propose that Congress enact a simple requirement of domestic currency pricing (DCP) for any cryptocurrency price used in commercial and financial transactions: whenever such transactions are denominated in cryptocurrency prices, they must also include, with greater prominence, the equivalent price in the domestic currency.
Recalibrating Reg D and the Accredited Investor Definition
Ben Rosenblum
Regulation D offerings are the most common way for private companies to sell securities in the United States. Natural persons other than “accredited investors” are generally excluded from investing in Regulation D offerings, and the financial thresholds for persons who qualify as “accredited investors” have not been adjusted in more than forty years. Commentary on the financial thresholds in the accredited investor definition generally falls into one of three camps: (i) abandon the financial thresholds in favor of general “sophistication” concepts, (ii) keep the thresholds where they are, or (iii) update the thresholds for inflation that has occurred since the thresholds were originally set.
This article suggests that none of these options consider the information that can be learned from forty years of Regulation D offerings, and that rather than picking either of these arbitrary numbers, the SEC should use the data from the last forty years to find the financial thresholds that best accomplish the goals of Regulation D. In addition, this article also suggests modest reforms to Regulation D to allow non-accredited investors to invest a limited amount of money in Regulation D offerings, in order to ensure that investors are not being unfairly barred from participation in potentially lucrative securities offerings on the basis of a lack of wealth.
FINRA and the Public/Private Divide: When Article II Constrains Industry Self-Regulation
Qiuyang (Marx) Wang
Recent challenges to the constitutionality of the Financial Industry Regulatory Authority (FINRA)—a nominally private organization operating in a self-regulated industry—have brought the private nondelegation doctrine back into the spotlight. Applying that doctrine presupposes that the entity in question is not part of the government for constitutional purposes, thereby skipping the threshold question of where to situate it along the public/private divide. Avoiding that inquiry, however, risks acquiescing in the evasion of Article II’s requirements on the proper appointment of officers, which apply only when entities are deemed public. Tracing the history and development of FINRA in the securities industry, this Note argues that the promotion of governmental objectives under sufficient government control is essential for an entity to be subject to the Appointments Clause. It advances this claim by revisiting Lebron v. National Railroad Passenger Corp., a foundational Supreme Court decision that provides a test for this determination, but one that has generated a split among the federal courts of appeals in its interpretation. After undertaking a close reading of the Lebron opinion and a comprehensive review of how every circuit has applied it, this Note contends that most courts have erred by treating a set of collectively sufficient conditions in that case as individually necessary.
This Note thus advocates for a flexible reading of Lebron, one that permits the consideration of previously overlooked functional and structural factors, without undermining its status as the controlling precedent. By placing FINRA in the broader context of self-regulatory organizations, this Note further identifies profit motive and institutional evolution as important circumstantial evidence in the public/private inquiry.