Key Takeaways
- Following a market crash last week, Securities and Exchange Commission Chairman Gary Gensler issued a strong warning to the investing public, describing crypto as a “highly speculative asset class” with no investor safeguards.
- “Right now, I believe investors using these platforms are not adequately safeguarded,” Gensler wrote in a letter to Sen. Elizabeth Warren, one of the most vociferous crypto detractors.
- Additional authorities, according to Gensler, are needed to prevent transactions, products, and platforms from going through regulatory cracks. “In this booming and risky business, we also need additional resources to protect investors.”
SEC Chairman Gary Gensler has considered regulations focusing on “crypto trading, lending, and DeFi platforms,” claiming that investors are at risk in a fast-growing and “high volatility sector.”
“Right now, I believe investors using these platforms are not adequately protected,” Gensler warned in a letter to Sen. Elizabeth Warren, one of the most active and vocal crypto critics.
Warren had inquired about the “sufficiency of the Securities and Exchange Commission’s power to supervise crypto platforms,” and Gensler responded with a letter.
Warren contended that instead of pursuing the established order of poorly coordinated responses from various federal agencies, the Financial Stability Oversight Council, led by Treasury Secretary Janet Yellen and including Gensler in his role as head of the SEC, should take the lead in developing a regulatory framework for crypto.
Individuals who acquire cryptocurrencies don’t typically get the same disclosures that people who buy traditional assets get, such as whether the trading platform they’re using is trading against them or if they genuinely control the assets they store in digital wallets, according to Gensler.
“We have this basic bargain: you, the investing public, can choose the risk you want to take, but there has to be full and fair information, and individuals aren’t meant to lie to you,” he said at the Financial Industry Regulatory Authority’s annual conference in Washington.
“Unlike other trading markets, where investors must go through an intermediary, consumers can trade on crypto trading platforms without a broker – 24 hours a day, seven days a week, from anywhere in the world,” he said in a letter sent Aug. 5 and shared by Warren’s office on Wednesday. “Additional authorities, in my opinion, are required to prevent transactions, products, and platforms from going through regulatory cracks. In this booming and risky business, we also need additional resources to protect investors.”
“Each token’s legal position depends on its unique facts and circumstances,” Gensler, who taught blockchain at MIT, said of the ongoing argument over whether crypto assets should be deemed currencies or securities.
While crypto markets are considered to be decentralised, most activity takes place on a few trading platforms, which, together with token issuers, must engage with the SEC to tighten industry rules and disclosures, according to Gensler.
“Anti-fraud, anti-manipulation, ensuring there’s no front-running, making sure an order book is actually true and not made up,” he said of core market principles.
Stablecoins, tokens fixed to the value of fiat currencies, he said, “may help individuals wanting to skirt a range of public policy goals associated with our conventional banking and financial system: anti-money laundering, tax compliance, sanctions, and the like.”
According to Gensler, the SEC would remain “a cop on the beat” while working with the Commodity Futures Trading Commission to assure that all cryptocurrencies are protected.
“There’s a lot to be done here, and the investing public isn’t effectively protected in the meanwhile,” he said.
After the Crisis, Gensler warns against investing in cryptocurrency:
Investors should not believe they own their crypto tokens, according to Gensler, because using a digital wallet on a platform is a transfer of ownership to the platform.
“What happens if the platform collapses?” “With the platform, you just have a counterparty connection,” Gensler explained. “Go to bankruptcy court and get in line.”
After stablecoin TerraUSD and sister token Luna plummeted to zero last week after a run, leaking over into other cryptocurrencies and causing an asset class-wide selloff, Gensler made strong statements about crypto’s hazards.
Gensler has been a vocal proponent of regulating cryptocurrencies and has attempted to impose authority over the asset class by applying the securities definition to the asset class. However, he and the SEC have refrained from implementing explicit crypto regulations, rather urging crypto trading platforms to proactively register with the SEC or taking regulatory action against crypto players who violate securities laws.
