Building the Proper Regulatory Framework for “Crypto-Asset Trading Platforms” in Canada — Lessons from the Art of Cheeseburgering

Bottom Line Up Front (TLDR)

We at Bull Bitcoin believe that bitcoin is bitcoin (BTC), shitcoins are shitcoins (everything else), and shitcoins that are securities should be regulated as such. We also believe that bitcoin in and of itself is not a security; however most, if not all, shitcoins look and smell like securities[1]. And for those of you who fancy slick websites with roadmaps and jargony bullshit whitepapers, here is a tip: if it looks like shit and smells like shit, it probably is a shit(coin). End of story.

Wait, Why Are Shitcoins Securities?

How do we determine if a shitcoin offering is a security? Regulators use a four-prong[2] test — the Howey Test — to determine whether an investment contract (security) exists. Specifically, does the offering involve:

1. An investment of money

2. In a common enterprise

3. With the expectation of profit

4. To come significantly from the efforts of others

Since most shitcoin offerings involve an investment in a partially or completely centralized organization with the expectation of a profit derived from the efforts of “the team” involved in the organization, most shitcoins should be considered securities.

Bitcoin, Burgers and the Law

There is a lot of discussion in the bitcoin world about how to make the perfect steak. Makes sense, there are a lot of bitcoin carnivores. But there hasn’t been much discussion about how to craft the perfect burger. There is also a lot of discussion in the world about how to regulate digital assets and the platforms that facilitate trading of digital assets. Recently the Canadian Securities Administrators (CSA) issued a Consultation Paper (21–402) requesting input on how to construct proper regulations for “Crypto-Asset Trading Platforms.” What can “cheeseburgering” teach us about crafting proper regulation?

Let’s find out.

First, get your mind out of the gutter. We’re actually talking about cheeseburgers here[3].

Many years ago, my father taught me how to construct the proper cheeseburger. Crafting the perfect cheeseburger is part art and part science. (Spoiler alert: so is crafting good regulations). To make the burger look good, you must be a great artist. To make it taste good, you must be a culinary scientist.

Cheeseburger Construction

I am going to assume you already know what type of beef to use, how to grind it, how to season it, how to properly shape the patty, and how to cook the patty. I understand this is a big leap of faith, but the analogy we are interested in is cheeseburger construction. Work with me.

Purpose and Stability

The first and most important rule of cheeseburger construction: The beef and cheese go on the bottom. Why? Two reasons: (1) to fulfill its purpose, and (2) to ensure stability.

Purpose. What is the purpose of a cheeseburger? Beyond providing the body with fuel to sustain life, the purpose of the cheeseburger is to provide a hot, juicy, tender, savory, and salty sensory experience that blows your mind.

Taste is processed by your brain through receptors in your mouth called taste buds. The vast majority of your taste buds are on your tongue which resides on the bottom of your mouth. The meat and cheese must hit your taste buds first before anything else. Therefore, because of the way your mouth is designed, the meat and cheese must go on bottom to serve its purpose properly. The cool, crunchy vegetables must come second to compliment and contrast the salty yumminess of the meat and cheese combination as a cool, smooth finisher. Vegetables are cold and crunchy and have a high water content. This finish helps the flavor mixing process within your mouth to provide the perfect blend of salty, tender, smooth and crunchy — the perfect cheeseburger bite[4].

Stability. The second reason the beef and cheese go on the bottom is because vegetables will cause the burger to be unstable if placed on the bottom. Like bitcoin’s base layer, and the foundation of any regulatory framework, the foundation of the perfect burger must be stable — solid and unshakable. Just as you wouldn’t build your castle on quicksand, you don’t build your burger with vegetables on bottom. Additionally, an unstable burger is one which you may be inclined to eat with a knife and fork. It’s a well-known fact that if you eat your cheeseburgers with a knife and fork, you’re more likely to be a nocoiner, or worse yet, a shitcoiner[5].

What is the Point?

There is a point to all this. Proper cheeseburgering is analogous to proper rule-making. We may not agree on what goes into the perfect burger, but we can agree on two things: the perfect burger (1) must serve its purpose, and (2) it must be stable (no one likes a sloppy burger that falls apart in your hands).

Likewise, in building the proper regulatory regime for “Crypto-Asset Trading Platforms” regulators must ensure that the rules serve their purpose (consumer protection) and ensure a stable regulatory environment that fosters innovation and allows businesses to survive and thrive. And in fulfilling its purpose, any regulatory framework must be simple, transparent and not overly burdensome.

Can you really build the perfect burger for every situation? No. Burgers are personal and must be individualized. You might like mustard[6]. You might like a veggie burger[7]. You might like ground fillet[8] and fancy spices[9].

Can you really craft the perfect regulations for all “Crypto-Asset Trading Platforms?” No. “Perfect regulations” is an oxymoron. In the great words of Dave Mustaine, “Two words combined that can’t make sense.” There are simply too many different situations and different “crypto asset” business models. Any regulatory framework therefore must be flexible enough to accommodate individual situations and allow exemptions where appropriate.

All Joking Aside

For any regulatory framework applied to “Crypto-Asset Trading Platforms” to properly fulfill its intended purpose and provide stability for businesses, we at Bull Bitcoin agree with the CSA that:

· “Crypto assets” classified as securities (or derivatives) should be regulated for the purposes of consumer protection.

·Most of the offerings of utility tokens have involved a distribution of that which could be construed as securities, usually as investment contracts.

· Most other “crypto assets” are tokenized forms of traditional securities or derivatives.

· Platforms that facilitate trading of “crypto assets” that are securities and/or derivatives should be subject to securities and/or derivatives regulatory requirements.

· Platforms that offer any form of custodial solutions as “crypto asset” storage for customers should be subject to securities and/or derivatives regulatory requirements.

· BITCOIN IS NOT A SECURITY (OR DERIVATIVE) and is more analogous to existing commodities such as precious metals and currencies.

· Platforms that deal in “crypto assets” deemed to be digital commodities (e.g., bitcoin) in a strictly non-custodial fashion (i.e., structured to deliver digital commodities directly to an investor’s wallet), and do not deal in “crypto assets” deemed to be securities (or derivatives) should not be subject to securities and/or derivatives regulatory requirements.

We at Bull Bitcoin also believe in keeping Alberta and Canada a business-friendly environment. Over-regulation by the CSA will drive innovation elsewhere. Any regulatory frameworks developed by the CSA for “Crypto-Asset Trading Platforms,” “crypto assets,” and/or “digital commodities” must be reasonable, transparent, and easy to understand.

Conclusion

Like building the proper cheeseburger, building the proper regulatory framework for “crypto assets” and “Crypto-Asset Trading Platforms” requires focus on purpose and stability.

Regulators must ensure that consumers don’t get heartburn from eating a shit-sandwich passed off as a legitimate cheeseburger.

That said, regulators must also ensure Canada remains business-friendly and guarantees a stable regulatory environment that will allow “crypto asset” businesses to innovate and thrive.

For more on what Bull Bitcoin believes makes “crypto assets” decentralized and believes to be proper considerations for successful digital asset custodial solutions, please go here.

DISCLAIMER: Cheeseburger opinions are strictly the author’s and do not necessarily reflect the culinary inklings of Bull Bitcoin. This article is for entertainment purposes only and is not to be construed as advice to buy cheeseburgers. No cheeseburgers were harmed in the writing of this article.

[1] Any centralized “crypto asset” should be considered a security. The only currently provably, truly decentralized virtual currency/digital asset at scale is bitcoin.

[2] Canadian Securities Administrators (CSA) Staff Notice 46–307 — Cryptocurrency Offerings.

[3] Whatever you do, DON’T google “cheeseburgering.”

[4] If you want vegetables on the bottom, eat a fucking salad.

[5] Nocoiners and shitcoiners are on what is called “the spectrum.” The spectrum ranges from Bitcoin Maximalist-in-Training to Delusional to Completely-Helpless-and-Rekt.

[6] Mustard has a lot of uses but it has NO business being on a cheeseburger. You want mustard? Eat a fucking ham sandwich.

[7] WARNING: A propensity for fake meat is a surefire sign of susceptibility to shitcoinery.

[8] This is a waste of money, noob. 70/30 chuck is perfectly fine.

[9] I bet you wear skinny jeans too, don’t you snowflake? Salt and pepper. Period.