Coinbase CEO Wants A Financial Literacy Test To Let Anyone Invest In Private Companies, Not Just The Rich

• Coinbase CEO Brian Armstrong advocates for a financial literacy test to replace U.S. accredited investor rules, labeling the current rules as "outdated" and a "regressive tax."
• Armstrong argued that the existing system favors wealthy investors for access to private placements.
• He proposed a test that would include topics like dollar-cost averaging, financial statements, and position sizing.

Brian Armstrong, CEO of Coinbase (COIN), has called for a financial literacy test instead of the U.S. accredited investor rules on Friday, saying the existing systems are “outdated” and a “regressive tax” that keeps retail investors out of private markets.

"You have to be rich to get richer" under the current system, Armstrong said on Yahoo Finance's Power Players podcast, arguing the framework locks retail investors out of wealth-building opportunities in private placements.

Armstrong said "anybody should be able to participate" in private markets if they were educated on the relevant topics, and used a hypothetical $100 investment in defense technology firm Anduril's Series C round as an example of what reform could unlock for individual investors.

The CEO outlined what a literacy test might include, like dollar-cost averaging, how to read company disclosures and financial statements, position sizing, and how to react in market downturns. He said that developing the test would be hard given the variety of investing philosophies, but that “a common set of beliefs and best practices” could be agreed on.

COIN stock closed at $163 on Friday, down by 1%. On Stocktwits, retail sentiment around COIN remained in the ‘bullish’ zone, while chatter stayed at ‘normal’ levels over the past day.

Coinbase's Pre-IPO Perps Push

Armstrong claimed that the reforms can expand the investor pool, support private companies to raise capital, and enable retail investors to participate in the primary market. The comments come as Coinbase launched pre-IPO perpetual futures contracts on companies, including SpaceX (SPCX), which are only available to non-U.S. users at the moment. The firm plans to launch this product in the US in partnership with the Securities and Exchange Commission (SEC) to advance its goal of granting retail investors access to this type of investment product.

SEC Reform Already In Motion

Under the accredited investor rule, specified by the SEC in 1982, private placements can typically only be sold to investors with a net worth of more than $1 million excluding the value of the primary residence, or an annual income of more than $200,000. Critics argue the wealth-based thresholds have nothing to do with investing sophistication, but supporters say they are a safeguard for less experienced investors.

In 2020, an amendment to SEC rules created a knowledge-based path through certain FINRA licenses, and in February, SEC Chairman Paul Atkins said, “financial sophistication can scarcely be measured by income or net worth alone." The SEC moved to dismiss a federal lawsuit filed last September by the Investor Choice Advocates Network, which had challenged the thresholds of wealth as arbitrary.

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