SEC Chairman Atkins Warns "Crypto Could Become the Most Powerful Financial Surveillance Architecture Ever Invented"

Remarks at the Crypto Task Force Roundtable on Financial Surveillance and Privacy

Crypto has been a forcing function, providing a unique opportunity to consider this question in the context of 21st century technology. Since January, this Administration has highlighted the importance of restoring power to individual Americans and entrusting them to manage their own affairs, including when it comes to crypto.

… For example, while the Commission created the CAT with the good intention of providing a clearer view of trading across markets, it became a powerful system that moved the SEC closer toward mass surveillance. That is why we have taken steps to scale back some of the CAT’s most sensitive data elements and to re-examine its scope and its cost. […]

With the advent of crypto, it is no great leap to imagine a steady migration toward a future where the government, and a constellation of intermediaries, can peer into almost every dimension of an individual’s financial life. While regulators may have a voracious appetite for data, that proclivity is obviously—and fundamentally—incompatible with the kind of free society that has made America great.

Regulators must therefore remain humble and principled as we embrace the opportunities that crypto presents….

Prediction market insider trading

If you have accurate inside information about Google search data, you could trade the stock, but that is obviously illegal and also messy: If the search news is good, you might buy the stock, but if there’s offsetting bad news that you didn’t know about, the stock might go down. Stock prices embed a lot of other stuff besides the single prediction you want to make. Just betting on the search data directly is a cleaner way to monetize your edge, and it is, you know, arguably more-ish legal-ish. […]

The point of a prediction market is to make prices correct, so insider trading seems helpful. (It is second-order unhelpful, because if prediction markets are full of insider traders then there’d be no one to trade against.)

And so one possible use case for prediction markets is “I have inside information, I want to insider trade, but the stock market is pretty regulated and frowns on insider trading. Is there a less-regulated market where I could accomplish the same thing?” I don’t think this is a correct analysis, but then I also didn’t think that commodities futures markets could offer sports betting, so what do I know.