GAZETTE: In the last few weeks, we’ve had prices move based on statements by Elon Musk. What is your assessment of the recent volatility?

DE FILIPPI: We saw a similar situation in 2017 and ’18. It went from like $500 to — I forgot how high, like $10,000 or $20,000. And then I think it dropped again and then went back up after that. This happens when you have new people coming in, making prices go up. An experienced trader knows exactly when to sell, traditional pump-and-dump strategies. It’s easy to see how manipulatable this model is. It’s interesting that it came right after the GameStop saga, when we saw that Reddit can actually affect the stock market. You have a very visible individual like Elon Musk who can literally pump and dump. [Musk has denied widespread accusations that he promoted Bitcoin then sold some of his company Tesla’s currency for a profit earlier this year.] It’s not new; it has happened all the time; and it’s probably going to continue to happen.

There’s a distinction between this and the traditional stock market in that it is so easy to jump in, so easy for anyone who has no knowledge whatsoever to just start trading cryptocurrency. I saw recently that Coinbase’s app has more downloads than TikTok, which means it has become absolutely democratized in terms of adoption — though by people who don’t really know how to play the game, so they’re easily influenced. On the one hand, you have experienced traders and on the other hand, you have many inexperienced players.

GAZETTE: Do you see government regulation coming into the picture more?

DE FILIPPI: I think definitely in the cryptocurrency exchanges, in terms of KYC [Know Your Customer standards intended to prevent money laundering and other illegal activities], and making sure that everyone is actually paying taxes on the profits that they make. In the U.S., a lot of the cryptocurrency exchanges are required to communicate to the IRS all the transactions being made by the users. Increasingly, all the cryptocurrency exchanges do not let users do anything unless they KYC themselves. So there is a strong push towards regulation.

It’s like IPOs [initial public offerings] once were. Initially it was the Wild West and then slowly regulation came in. The SEC [Securities and Exchange Commission] started to determine what should be regulated as a security and what not. In some ways, it’s necessary to provide some kind of legal certainty. Right now, not everyone is trying to abuse the system, but as long as there are ways to scam, some people will jump on that opportunity. The caveat is that it’s harder to regulate this technology. It’s easy to regulate intermediaries, who are playing a more and more important role over time, but it’s also possible to bypass the intermediaries and transact on a peer-to-peer basis, which is actually much harder to regulate.

Interview was edited for clarity and length.


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