The legalization of gambling in the United States is on the rise, with new casinos emerging in various locations outside of Las Vegas. Additionally, professional sports leagues, which were previously against sports betting, are now embracing it. Despite its questionable social benefits, gambling is open to the general public, with only certain age restrictions in place. However, startup investing, as well as investing in venture capital funds or collectible art funds, is not accessible to everyone. These activities are restricted to “accredited investors,” a term used to describe individuals who meet specific wealth criteria set by the American government. Interestingly, the government seems to prefer individuals risking their money in casino games, where the odds are against them, rather than investing in startups that have the potential to succeed.
Accredited investor laws limit various forms of investing to “sophisticated investors,” but this sophistication is not measured by knowledge or experience. Instead, it is determined by an individual’s wealth. To be considered sophisticated, one must have an annual income of at least $200,000 or a net worth exceeding $1 million. Surprisingly, the level of investment knowledge is irrelevant in this context. Consequently, a 60-year-old who inherited a family construction business can freely invest in AI startups, while a 24-year-old with a degree in machine learning cannot.
These accredited investor laws, although intended to protect ordinary people from risky investments, are inherently classist and unfair. They are enforced by the government, which simultaneously encourages the public to participate in high-risk activities such as the lottery, known for its terrible odds. Economists refer to the lottery as a “regressive tax” because it disproportionately affects the poor. These laws contribute to wealth inequality, as asset prices consistently outperform wages. The investments reserved for the already wealthy have proven to be the most lucrative.
Cryptocurrency has been an exception to these restrictions. Bitcoin and Ethereum, for example, have been available to the public and have outperformed other investments. However, the U.S. government intervened and declared that the Ethereum initial coin offering (ICO) violated the law simply because ordinary people were allowed to participate. The government’s interference prevented those who could have benefited the most from the investment from doing so.
These regulations are one of the reasons why most crypto projects now solely rely on funding from venture capital funds or accredited angel investors. They also restrict the eligibility of recipients for airdrops. The government claims that these measures are in place to protect people. However, the same government has no issue with advertising complex sports bets to countless individuals before professional sports matches. Surprisingly, while more than half of all Americans have reportedly gambled in the past year, less than 20% qualify as accredited investors.
Cryptocurrency often provides a critical reflection of our society, forcing us to contemplate the flaws in our current legal and regulatory systems. It reveals the unflattering aspects of these systems, highlighting the need for change.
Omid Malekan, a guest columnist for Cointelegraph, an adjunct professor at Columbia Business School, and the author of “Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets, and Platforms,” shares these insights. This article serves as general information and should not be considered legal or investment advice. The opinions expressed here are solely those of the author and do not necessarily represent the views of Cointelegraph.