When fines for pollution are too low, some companies will choose to foul the water. This may be bad from a moral and environmental standpoint, but it’s also a rational business strategy.

A similar situation is at play in the crypto world. The absence of clear rules has led some companies to play fast and loose with securities laws, calculating that the profits will outweigh any potential punishment. Other firms are operating more cautiously, betting that staying in the good grace of regulators is worth more in the long run than a quick buck right now.

Consider the case of cryptocurrency exchanges, which face a dilemma over which digital tokens to sell to the public. While it’s been clear for a while that Bitcoin and Ethereum are not securities—a conclusion the SEC confirmed last week—it’s harder to know the legal status of other tokens like Zcash or Monero or XRP.

The biggest U.S. exchange, Coinbase, has decided to play it safe and only offer a handful of tokens, including the newly-added Ethereum Classic. This will keep it on the right side of the SEC but also mean lost opportunities: Coinbase won’t collect trading commissions on other tokens, and will also forgo pay-to-play fees (rumored to be $1 million or more) that some companies pony up to get their tokens listed. More seriously, Coinbase faces a strategic risk if customers leave for other exchanges that offer a wider section of cryptocurrency investments.

Coinbase’s executives and investors aren’t stupid, of course. If they’re like most crypto enthusiasts, they have a sound understanding of game theory, and have considered when it’s better to cede some of the market to competitors rather than run afoul of the regulators.

If Coinbase’s caution is justified, it means the SEC’s enforcement actions might be just beginning, and other exchanges could be in for a regulatory mauling. As the law firm Davis Wright Tremaine noted after the SEC’s latest comments, those who sell unlicensed securities can face “substantial fines and civil money penalties, as well as exceedingly high defense costs” plus other punishments.

For now, though, it’s too soon to know if Coinbase’s goody-two-shoes approach will pay off. In two years, the company may well look back and wish it had adopted the run-and-gun mentality of so many other crypto companies.

On a final note, the FT and others have reported that ethical companies perform better overall than those who brush aside legal and moral rules. Will this hold true for crypto—a realm where many embrace amorality? We’ll find out. Thanks for reading and enjoy the first weekend of summer.


As you probably noticed, we’ve decided to try sending the newsletter on Saturday morning this week rather than on Friday. If you have thoughts about that—or anything else—we’d love to hear them. You can send feedback and tips to ledger@fortune.com, find us on Twitter @FortuneLedger or email/DM me directly at the contact info below.

Jeff John Roberts


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