The term “accredited investor” is one that is normally thrown around in the Venture Capital world, yet it is unfortunately starting to creep its way into the world of crypto.
As an investor, to be ‘accredited’ is to have special status under financial regulation laws. This special status grants you access to complex and higher-risk investments such as venture capital, hedge funds and angel investments.
In the United States, accredited investor rules dictate that you must have a net worth of at least $1,000,000, or earn an income of at least $200,000 each year for the last two years. The assumption with this status is that only people with large amounts of money should be afforded the privilege of investing in risky companies where their entire investment could drop to zero.
Although the goal is supposed to be to protect regular investors, this is actually the opposite case.
During an extensive interview on June the 22nd at the Wang Feng’s Ten Questions show, Ethereum inventor Vitalik Buterin shared his honest thoughts on accredited investors:
“I personally am willing to publicly say that I find current accredited investor rules of many countries, which allow only millionaires to invest in securities, very unfair and plutocratic, and in some cases they can make things actually worse because they mean regular people can only buy in at higher prices and thus more easily become victims.”
Many who understand that the only way to make ‘real’ money as an investor is to get in early, have expressed this sentiment. Accredited Investors might have the privilege of investing in stocks or tokens at a 50% discount, and can simply choose to sell their stake once the stocks or tokens go public and everyone else starts buying in. This creates a cycle whereby accredited investors don’t even have to recognize any long-term value in a company in order to profit. They simply have to get in early and rely on non-accredited investors to jump in later so they can profit off of them.
In the end, the average Joe investors whom the laws are supposed to protect can end up getting hurt because by the time they have bought in, the price can only go down, as accredited investors begin to sell their stake.
Accredited investor rules clearly allow for investors with less money to be taken advantage of. Furthermore, by denying non-accredited investors access to high-risk investments, Governments are also denying them the ability to benefit from the high rewards of taking such risks, which is crucial for regular people looking to climb up the socioeconomic ladder.
Despite its drawbacks, ICO’s are a great example of how wealth inequality can be solved by simply allowing people to take responsibility for where they invest their money. Exclusively in the world of crypto have we seen investors who could only afford to put in $1,000, grow their net worth to over $1 million as a result of a combination of risk tolerance, luck and the ability to identify value. Meanwhile, much of the institutional and accredited investor money remained absent during the early days of crypto.
Non-accredited investors funded the crypto revolution, showing that the amount of money in ones bank account doesn’t define their ability to identify great value in the market and manage risk. Therefore, it’s imperative that the crypto market self regulates in favor of companies that push for non-accredited investors to participate, as it demonstrates a commitment to the decentralization ethos of Blockchain technology, and a willingness to test the worth of a company’s value proposition in a truly free market.