Gensler made the comments during a live webcast with The Washington Post. He addressed some of the major trends in the cryptocurrency industry. On one end of the spectrum, he showed an appreciation for Satoshi Nakamoto, the creator of Bitcoin and author of the whitepaper. On the other side, he took aim at thousands of other tokens as well as the trading platforms on which they trade.
The SEC chief ultimately sees Bitcoin as a “catalyst for change” while also calling it speculative and pointing to price volatility. For example, the Bitcoin price is down 5% today and has shaved more than 10% off its value in the past week.
Nonetheless, Bitcoin has forced global central banks to consider enhancing their payment systems to operate 24/7 in real-time and at lower costs, attributes that are inherent with cryptocurrencies and the blockchain. Gensler repeatedly said that technologies don’t last long outside of a social and regulatory framework. As a result, he wants to lasso cryptocurrencies into the public policy framework to ensure public policy goals.
Gensler acknowledged that central banks are competing with the private sector in areas such as exchanges and decentralized lending, where there is some interesting innovation going on that is challenging the status quo.
However, he is equally concerned about cryptocurrency trading and lending platforms that allow investors to amplify their returns. Gensler said it’s “highly likely” that these contracts fit the definition of a security. He wants to see the platforms come to the SEC and figure out how to register. Not many have, and he fears that the regulator will continue to bring enforcement cases as a result. He said,
“There’s going to be a problem on lending and trading platforms. When that happens, I think a lot of people are going to get hurt.
Source: The Washington Post
Spill in aisle three
Gensler warned that he doesn’t want to wait until there is a “spill in aisle three” in the cryptocurrency industry, in response to which the official sector would have to rush in. He points to the $2 trillion cryptocurrency industry across thousands of projects, saying it would be better for them to be inside guardrails such as investor and consumer protection, tax compliance, anti-money laundering protocols and financial stability.
He went on to say that if regulators don’t do anything and there is never a spill, that would be great. But if history is any indication, private money doesn’t last long. Lending platforms outside the securities or banking perimeter usually have excess leverage, which introduces a stability issue, said Gensler, adding:
“There are warning signs and flashing lights that we might have a spill in aisle three, and I want to get ahead of it.”
Coordinating with Congress
Gensler discussed how the two market regulators, the SEC and the CFTC, could coordinate on the thousands of cryptocurrencies, some of which have attributes of securities and others of which are more akin to commodities. Others still have attributes of both. He explained how the SEC has robust regulatory authorities that its sister agency, the CFTC, lacks and vice versa, which is why they should collaborate.
Gensler mentioned how the securities watchdog might coordinate with banking regulators on stablecoins, which are digital assets that are pegged to another asset such as the U.S. dollar. He said that stablecoins “might have attributes of investment contracts,” and the banking authorities don’t have the full gamut of what they need to regulate them. According to Gensler,
“Stablecoins are acting like poker chips at the casino gaming tables.”
The cryptocurrency industry found amusement in this statement, considering that most stablecoins are pegged to the U.S. dollar.
In a way, he’s admitting the USD is also similar to poker chips at a Casino
They just don’t like that they don’t own the “Casino” of crypto (like they do with banks and USD) ? https://t.co/7qN5u83J7Q
— LilMoonLambo (@LilMoonLambo) September 21, 2021
Gensler referenced a report on stablecoins that the SEC is currently working on alongside Treasury Secretary Janet Yellen.
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