SEC Compares Crypto to “The Wild West”

SEC Compares Crypto

The U.S. Securities and Exchange Commission wants to expand the scope of crypto regulation. 

On September 14, Gary Gensler, the Chairman of U.S. Securities and Exchange Commission (SEC), said that he doesn’t see long-term viability for cryptocurrency. He emphasized the importance of regulating crypto and protecting the interests of investors. 

“I don’t think it’s a good idea to wait until there’s a spill in aisle three,” Gensler said in the Washington Post’s virtual event, emphasizing that he would rather the SEC be ahead of any mishaps. He said that most cryptocurrencies have attributes of securities and should be regulated as such.

Gensler’s statement highlights the importance of keeping your crypto investments safe (read more about that in our article “Money Matters: How to identify valueless cryptocurrency and dodge “shitcoins”. But before you do, let’s take a closer look at his views on cryptocurrency and what this means for crypto trading platforms like Coinbase.

Major points of critique

Gensler is critical of decentralized financing (DeFi) platforms (platforms where people can trade cryptocurrency). He believes that under the guise of being decentralized, DeFi platforms hide extra fees and charges in their agreements which a user often ends up glossing over.

Gensler compares cryptocurrency to the “Wild West”, saying that the asset class is flooded with scams and frauds. He called stable coins “poker chips” in the cryptocurrency casino. Stable coins are not as volatile as other cryptocurrencies because they are backed by a reserved asset. For instance, Tether USD is a stable coin that is valued against US Dollars. Each individual coin is equivalent to US$1. These act like a bridge between cryptocurrencies and fiat currencies (currency issued by a government). 

Gensler said that stable coins have aspects of both SEC-regulated investment contracts and banking products. However, despite the similarities, bank regulators lack the authority necessary to supervise them.

Addressing Senator Elizabeth Warren

Gensler’s statement about crypto should not be understood in isolation. Lawmakers, like Elizabeth Warren, have long urged the SEC to regulate cryptocurrency. On July 8, 2021, Warren wrote a letter addressed to the SEC where she mentioned that regulatory gaps in crypto “endanger consumers and investors and undermine the safety of our financial markets”.

Gensler addressed Warren’s letter by asking the U.S. Congress to give SEC additional authority. He also told lawmakers that investor protection rules need to be extended to crypto exchanges as well as to reduce fraud and promote fairness. 

Cracking the whip on Coinbase

Gensler has pointed out how Coinbase, North America’s biggest cryptocurrency exchange platform by trading volume, is not registered with the SEC. He added that since the exchange platform is not registered with them, they have not been subjected to the same disclosure requirements as other platforms, even though they “may have dozens of tokens that are securities”.

Coinbase was planning on launching its Lend program in October this year. Under Lend, eligible customers would be allowed to earn interest by lending digital assets. The SEC has warned Coinbase that it would take legal action if the Lend program is implemented. The program has thus been abandoned.

Gensler’s recent statements have sparked conversations on crypto regulation. While Gensler doesn’t think crypto will last for a long time, he said,“ I think it’s worthwhile to have an investor-protection regime placed around this [cryptocurrency]”.

Header image courtesy of Flickr

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Kamya Pandey
Kamya is a writer at Jumpstart. She is obsessed with podcasts, films, everything horror-related, and art.

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