The US SEC Chairman issued an important statement on cryptocurrency for the first time since he took office: Emphasizing the urgency of supervision and investor protection
At the Aspen Security Forum on Tuesday, US Securities and Exchange Commission (SEC) Chairman Gary Gensler emphasized the need for stricter and more effective investor protections for cryptocurrencies.
Gensler said: ” Currently, we don’t have enough investor protection in the crypto space. Frankly speaking, at this time, it’s more like the Wild West.”
He pointed out that encryption, an asset class, is rife with fraud, scams, and abuse in certain applications, and more congressional authorization is needed to prevent transactions, products, and platforms from falling into regulatory loopholes.
Gensler was a former partner of Goldman Sachs and was Chairman of the US Commodity Futures Trading Commission (CFTC) under President Obama; today’s speech is his first important statement on cryptocurrency since he took over the US Securities and Exchange Commission in April. .
Gensler said that although most cryptocurrencies do not meet the traditional three-part definition of “currency” (ie, medium of exchange, unit of account, and store of value), the blockchain technology behind it may have an inherent value.
He said that this is what he learned when he taught cryptocurrency courses at the Massachusetts Institute of Technology (MIT): “In that job, I began to believe that although there are a lot of hype disguised as reality in the crypto field, Satoshi Nakamoto’s Innovation is real.”
He believes that the blockchain revolution initiated by Satoshi Nakamoto in 2008 is not only a fashion, but the true value proposition of the Internet in the future.
He said: “I think distributed ledger technology does have some real things, it can transfer value on the Internet… In essence, Satoshi Nakamoto tried to create a form of private money without a central intermediary, such as a central bank. Or commercial banks…First of all, encrypted assets provide digital and scarce tools for speculative investment. Therefore, in this sense, people can say that they are highly speculative storage of value .”
Gensler talked about several aspects of encryption business in his speech.
Digital tokens : Gensler stated that many digital tokens, because they are investment contracts, offered and sold as securities, should be regulated. He said: “I believe we now have an encrypted market, many of which may be unregistered securities, without disclosure or market surveillance. This makes prices easily manipulated and makes investors vulnerable.” He said, Employees have been urged to continue to protect investors in the event of unregistered securities sales. Gensler believes that the vast majority of encrypted tokens and initial coin offerings (ICOs) violate US securities laws.
Encrypted trading platform: Gensler pointed out that there are more than 50 tokens on a typical trading platform, and these platforms have major gaps in investor protection. The question is whether any of these tokens are securities under the jurisdiction of the SEC. He said: “As far as the securities on these trading platforms are concerned, according to our law, they must be registered with the Securities Regulatory Commission unless they meet the exemption conditions.”
Stable currency: Gensler pointed out that cryptocurrency-to-cryptocurrency transactions are usually done using stablecoins, which are encrypted tokens linked to the value of legal tender. Gensler is concerned that these stablecoins may be used as part of a broader effort to circumvent anti-money laundering and tax compliance laws, and will also affect national security. He said that these stablecoins may also be securities and investment companies. If so, they should fall under the jurisdiction of the SEC.
Bitcoin ETF: Several companies sought SEC approval for Bitcoin ETF, but they were all rejected. However, Gensler pointed out that there are already many tools for investing in bitcoin, such as closed-end grayscale bitcoin trusts and mutual funds that invest in bitcoin futures. He expects companies to apply for ETFs under the existing Investment Company Act of 1940, which regulates mutual funds and closed-end funds and provides important investor protection. He said, “In view of these important safeguards, I look forward to staff reviewing such documents (Bitcoin ETF), especially if these documents are limited to Bitcoin futures traded by CME.”
Custody of crypto assets: Gensler stated that the SEC is seeking comments on the crypto custody arrangements of broker-dealers and issues related to investment advisors. He said, “Custody protection is the key to preventing investors’ assets from being stolen, and we will seek to maximize regulatory protection in this regard.”
Gensler avoided questions about the regulatory status of Ethereum and declined to comment on whether Ethereum is a security.
Gensler is regarded as a champion of financial innovation, and this is for good reason. He said that encryption “has been and will continue to be a catalyst for changes in the financial and monetary fields.”
However, he made it clear that the encryption field urgently needs additional supervision before moving forward. “For those who want to encourage crypto innovation, I would like to point out that throughout history, financial innovation has flourished outside of our public policy framework. If this field is to continue, or to realize its potential as a catalyst for change , We’d better incorporate it into the public policy framework.”
Gensler said in an interview with Bloomberg today that his rich background in blockchain and cryptocurrency does not mean that he will make any concessions for this nascent industry. He emphasized that although he is neutral and even “interested” in this technology, it is “not neutral to investor protection.”
He said in the interview: “I have asked the staff to use all our power wherever possible,” but he did not comment on the possibility of approving the Bitcoin ETF.
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