When Securities and Exchange Commission (SEC) Chairman Gary Gensler assumed office in April, the crypto sector anticipated a shift in the federal agency’s approach toward cryptocurrencies and digital assets, which had been antagonistic throughout his predecessor’s term. He has let them down.
- During his Senate statement on Tuesday, SEC Chair Gary Gensler attacked the cryptocurrency business.
- He claims that DeFi is merely decentralized in name and that “many many” tokens traded on cryptocurrency exchanges are securities.
- Despite his comments, Gensler said that he was not opposed to cryptocurrencies.
- He said that his organization was understaffed and might benefit from more financing.
Not only has Gensler raised fresh worries and referred to the business as “the Wild West,” but he has also taken every chance to make his case for putting the industry under his agency’s control. In his hearing before the Senate Banking Committee on Tuesday, the SEC chairman highlighted those concerns and argued for putting the obstinate sector under his supervision.
A Critical Assessment
The majority of Gensler’s views of the condition of the bitcoin business were unfavorable. Only a “small fraction” of cryptocurrencies now trading in crypto marketplaces, according to the SEC chairman, are not securities. “A lot of them,” Gensler remarked. Stablecoins are a form of cryptocurrency whose price is tied to a fiat currency or a basket of assets in order to limit price swings.
When questioned why stablecoins were classified as securities, Gensler cited the “35 distinct things” designated as securities in the 1933 Securities Act. While the cryptocurrency sector is obsessed on the Howey Test, which was detailed in a Supreme Court decision to define securities, the Act defines securities in a variety of ways, including investment contracts, collateral-trust deposits, and certificates of deposit.
This year has seen an explosion in the popularity of Decentralized Finance (DeFi) coins and services. However, Gensler claims that the services are only decentralized in name, and that user agreements for such services conceal extra fees and levies that the client is unaware of. He called DeFi and crypto tokens a “very speculative asset class,” and he agreed with Massachusetts Senator Elizabeth Warren, a Democrat, that high and unexpected fees at DeFi services might “make crypto unsafe.”
During the hearing, Gensler also targeted Coinbase, the largest bitcoin exchange by trading volume in North America. Coinbase Global, Inc. (COIN) CEO Brian Armstrong accused the SEC last week of “very dodgy conduct” for refusing to explain why tokens in their lending program were classified as securities. He further said that by threatening to prosecute cryptocurrency exchanges, the government is “creating an unfair market.”
According to Gensler, the exchange’s trading marketplaces may include “dozens of tokens that constitute securities.” “However, they [Coinbase] are not registered with the SEC,” he continued, implying that Coinbase is not subject to the same disclosure requirements as other trading exchanges that are registered with the agency.
Despite his harsh criticism of the cryptocurrency business, Gensler stated that he is not “negative or minimalist” about cryptocurrencies. “I believe that if the area, which I studied for 3.5 years at MIT,” he stated, “remains outside the public policy framework for Anti-Money Laundering (AML), investor protection, and tax fraud… it will not survive.”
More Funding and Coordination Needed
While arguing for more crypto supervision, Gensler also requested increased resources for his agency. He has arrived at the agency at a pivotal juncture in its history. Previous regulations for capital market development have been rendered obsolete by technology, and the advent of meme stock traders has upended investor protection. Gensler claims that his company is now working on 6,000 projects and is understaffed. “In terms of funding, we could need a lot more people,” he remarked.
He believes that improved cooperation among market regulators is essential in the case of cryptocurrencies. Establishing a regulatory framework for stablecoins, for example, may need his government coordinating its efforts with banking institutions. “And then there are other nitty-gritty issues, like infrastructure and custody [of digital assets], that I believe we can engage with Congress to address,” Gensler added.
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