Ask the experts; they'll tell you. Crypto is a Ponzi scheme. No, not that; it's the biggest Ponzi scheme in human history. No, not even that; it's even worse than a Bernie Madoff-style Ponzi scheme. And as we all know, all Ponzi schemes have to collapse eventually, leaving the poor suckers who didn't sell in time holding the bag.

Who is out there to protect innocent investors?

The main burden falls on the Securities and Exchange Commission (SEC), which, according to the organization, is "concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes in which these currencies are used to facilitate fraudulent, or simply fabricated, investments or transactions."

And following through on its mission, the SEC has indicted Sam Bankman-Fried — arguably the king of crypto Ponzi schemes — for cheating investors.

The SEC Needs to Get Back to Basics

But now that the SEC has made the world safe from crypto scammers, it should, perhaps, turn its attention to the rating agency that gave Silicon Valley Bank (SVB) a clean bill of financial health just a scant few weeks before it crashed.

Or perhaps it should investigate its own culpability in the second biggest bank crash in U.S. history — failing to notice, for example, that SVB's debt-to-equity ratio was apparently 185-1 on the eve of the crash, far beyond what is considered average, risky or even dangerous.

This D/E ratio level was not a secret; it was all on the books. And despite the White House's claims to the contrary, it's likely that taxpayers will be on the hook to bail out the depositors whose accounts exceeded the $250,000 they were insured for.

A Ponzi scheme entails payouts for "insiders," while those without connections lose out. Isn't that what's happening here? And if the SEC bailout of SVB's depositors can indeed be termed a Ponzi scheme, isn't it a far worse scheme than SBF's, which, so far, hasn't cost taxpayers one red cent?

Once again, it seems it's the 1% of the elites — in this case, the tech elites — who (literally) make out like bandits, while the rest of the 99% have to foot the bill. And it's all perfectly legal — sanctioned by the highest regulatory authorities in the land.

Reigning in Risk

Of course, the argument could be made that SVB, while not a large bank, was a key player in a key industry, making it, if not too big, then too important to fail.

Generals and politicians, it is said, always fight the last war, and it appears that the SVB bailout was at least partly prompted by efforts to avoid the fallout that emerged from the government's refusal to bail out Lehman Brothers in 2008, which arguably lead to the systemic panic that set the world economy back significantly.

But the issue here isn't SVB; it's how the bank reached its degraded state and why these things keep happening.

While the SEC wasn't in charge of Credit Suisse, the same kind of freewheeling investment moves, with laissez-faire (at best) regulatory supervision, brought that bank to its knees as well. And there are plenty of other banks, both in the U.S. and abroad that are likely to follow in SVB's and Credit Suisse's path to a crash.

In other words, it's not a particular bank; the fault lies in the banking system, and the failure of regulators to rein in overzealous bankers who dangerously risk their depositors' money. This regulatory failure is baked into the system and the almost inevitable results of what is essentially a very lightly regulated banking environment are now manifesting.

The Public Must Demand More From Regulators

There are two lessons here: Investors and depositors — the 99% — who want to make sure they are getting a fair shake are going to have to take matters into their own hands, demanding that institutions and regulators do not take unreasonable risks with their money.

Of course, no bank will admit that it is taking such risks; so pressure needs to be applied to regulators to implement and enforce rules that will ensure that banks don't, for example, take on SVB-level D/E ratios, no matter how safe a bank investment seems to be.

And that brings us to the second lesson: If there are structural problems in the world banking system, it's because governments and regulators — again, chiefly the SEC, whose lead is followed by regulators around the world — allowed them to be there.

If so, should the SEC be treating crypto so heavy-handedly?

Regulators should have noticed the gap between SVB's bond-based assets versus their depositor obligations and should have picked up on the obvious cliff long before word got out among depositors. That they didn't is a great failure on their part.

Unfortunately, as we've already seen, SVB wasn't a one-off. It's clear; it was a result of policy. Might regulators be wrong about how they are attempting to shut crypto down, instead of fostering an open, free-trading blockchain-based environment that would allow individual investors to truly control their assets?

The SEC Needs to Ensure Safety — Not Reward Financial Mismanagement

Regulators need to curb their anti-crypto agenda and set fair rules that will allow free trading and not set the rules arbitrarily, just because they don't "like" crypto. That has to stop; crypto is a legitimate asset platform, and regulators need to treat it as such.

The arbitrary efforts to "stop the scam" in crypto while allowing banks to run the economy to ruin stinks of hypocrisy. Regulators need to improve their rule-making and enforcement before they can be trusted on the broader mandate they seek on digital.

We need an SEC that protects us — not one that rewards financial mismanagement. Unfortunately, the quick government action ensured that SVB depositors will be "made whole," with access to all the money in their accounts was just that — and we, the people, must put a stop to it.

At this point, regulators have lost investor confidence by rewarding the reckless risk management banks engaged in. It's the responsibility of regulators to ensure that the economy, as well as all the taxpayers who are providing this bailout, be "made whole" as well.

They need to set up fair, transparent rules that will apply to everyone — high-tech banks, crypto investments and others. Failure to do so will just kick the "crisis can" down the road. The only problem: We seem to be running out of road. The time to fix these issues is now.

(Dmitry Gooshchin is the chief operating officer and co-founder of EndoTech, an AI trading platform.)

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