Crypto ‘Wild West’ Needs Stronger Investor Protection, SEC Chief Says

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The Wall Street Journal 03 August, 2021 - 12:02pm 63 views

WASHINGTON—The Securities and Exchange Commission will police cryptocurrency markets to the maximum extent possible, Chairman Gary Gensler said Tuesday, calling on Congress to grant the agency more authority and resources to regulate the sector.

“Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West,” Mr. Gensler said in prepared remarks to the Aspen Security Forum. “We have taken and will continue to take our authorities as far as they go.”

WASHINGTON—The Securities and Exchange Commission will police cryptocurrency markets to the maximum extent possible, Chairman Gary Gensler said Tuesday, calling on Congress to grant the agency more authority and resources to regulate the sector.

“Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West,” Mr. Gensler said in prepared remarks to the Aspen Security Forum. “We have taken and will continue to take our authorities as far as they go.”

Speaking at The Wall Street Journal's CEO Council Summit in May, Treasury Secretary Janet Yellen said she didn't believe there was adequate regulatory framework for cryptocurrencies, but that the Federal Reserve was cautiously considering a digital currency. The Wall Street Journal Interactive Edition

U.S. financial regulators have struggled to get their arms around the fast-growing world of cryptocurrency and related financial technologies. Unlike in the securities and derivatives markets, no single regulator oversees crypto exchanges or brokers. As the market value of the asset class has exploded, so have scams.

“Right now, large parts of the field of crypto are sitting astride of—not operating within—regulatory frameworks that protect investors and consumers, guard against illicit activity, ensure for financial stability, and...protect national security,” said Mr. Gensler, while highlighting a range of areas in which the SEC could expand its oversight. The SEC chair is a veteran Democratic regulator who taught a course on cryptocurrency at the Massachusetts Institute of Technology.

One of them is decentralized finance, or DeFi, applications that allow users to borrow, lend, earn interest and trade assets and derivatives. The services are often used by people seeking to borrow against their cryptocurrency holdings to place larger bets.

“The world of crypto finance now has platforms where people can trade tokens and other venues where people can lend tokens,” Mr. Gensler said. He said he believes these platforms can be subject to securities laws and may also be subject to commodities and banking laws.

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Mr. Gensler said so-called stablecoins—digital assets pegged to the value of national currencies—also may meet the definition of securities or investment companies, which would also put them within the SEC’s jurisdiction.

Traders typically use stablecoins to exchange one crypto asset for another, Mr. Gensler said, noting that in July almost three-fourths of trading on cryptocurrency platforms occurred between a stablecoin and some other token.

“The use of stablecoins on these platforms may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money-laundering, tax compliance, sanctions, and the like,” Mr. Gensler said.

Write to Paul Kiernan at paul.kiernan@wsj.com

Read full article at The Wall Street Journal

SEC head Gary Gensler sees a pathway for a bitcoin ETF (Cryptocurrency:BTC-USD)

Seeking Alpha 03 August, 2021 - 11:28am

He notes that a number of filings seeking approval of bitcoin ETF have already been submitted and he expects more to come.

"I'm looking forward to what staff says about these filings," he said during the speech.

Most of the pending ETF filings have been submitted under a 1930s covering stock exchanges listing products; he'd like to see a filing that goes through a 1940 law covering mutual funds, he said.

Right now, he calls crypto a "highly speculative store of value."

He highlights the importance of regulating crypto. "I fear that if we don't address the issues, a lot of people will be hurt," he said.

Bitcoin (BTC-USD) slips to ~$38.2K.

Updated at 12:58 PM: He said the SEC has significant authority in regulating crypto, but he hopes to get more.

"I think working with Congress we can get some new authorities, especially in regard to these new platforms," Gensler said, referring to crypto lending platforms.

1:06 PM ET:  The SEC will be seeking public comment on rules to require that issuers disclose climate risk exposure, Gensler said. "Investors want information about climate risk" regarding their investments, he notes.

1:15 PM: Gensler contends that the SEC has provided a lot of clarity on crypto regulation, especially in areas where it has clear authority, such as when a cryptocurrency is considered a security.  As to where the SEC may need to provide more clarity and get more authority, he points to custody and funds.

"There's work where we're doing in custody, we're making some progress in funds..  where we can use some additional work with Congress is these (crypto) platforms," he said.

1:16 PM ET: Session ends.

See SA author Joshua Sorto's argument for bitcoin's use in the developing world

What the SEC chair's comments on crypto mean for a possible bitcoin ETF

CNBC 03 August, 2021 - 11:17am

"This asset class is rife with fraud, scams, and abuse in certain applications," SEC Chairman Gary Gensler said at the Aspen Security Forum on Tuesday.

"We need additional congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks."

Gensler addressed several aspects of the crypto business in his speech.

Digital tokens: Gensler said many digital tokens, because they are investment contracts, are offered and sold as securities and should be regulated as such. "I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight," he said. 

 "This leaves prices open to manipulation. This leaves investors vulnerable." He said he has urged staff to "continue to protect investors in the case of unregistered sales of securities."

 Crypto trading platforms: Noting that a typical trading platform has more than 50 tokens on it, Gensler said the platforms have "significant gaps in investor protection." The issue is whether any of those tokens are securities that would come under the purview of the SEC. "To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they meet an exemption," he said.

Stablecoins: Gensler noted that trading crypto-to-crypto was typically done using stablecoins, which are crypto tokens pegged or linked to the value of fiat currencies. Gensler is concerned these stablecoins may be used as part of a broader effort to sidestep anti-money laundering and tax compliance laws, and also affect national security. Gensler said these stablecoins may also be securities and investment companies and if so, should come under the purview of the SEC.

Bitcoin ETFs. Several companies have sought the SEC's approval for a bitcoin ETF, and all have been denied. Gensler noted, however, that several vehicles already invest in bitcoin, such as the closed-end Grayscale Bitcoin Trust and mutual funds that invest in bitcoin futures. Gensler said he anticipates companies will file for ETFs under the existing 1940 Investment Company Act, which regulates mutual funds and closed-end funds, and which "provides significant investor protections."

"Given these important protections, I look forward to the staff's review of such filings, particularly if those are limited to these CME-traded bitcoin futures."

Last week, ProShares went live with a mutual fund tracking bitcoin futures, the Bitcoin Strategy ProFund (BTCFX).

Gensler did not comment on the many bitcoin ETF applications that do not own bitcoin futures but instead seek to own bitcoin directly.

Gensler may be attempting to distinguish between ownership of bitcoin in the futures market, which is heavily regulated, and a bitcoin ETF that would involve the fund buying bitcoins through unregulated parties.

Custody of crypto assets. Gensler said the SEC was seeking comment on crypto custody arrangements by broker-dealers and relating to investment advisers. "Custody protections are key to preventing theft of investor assets, and we will be looking to maximize regulatory protections in this area," he said.

Gensler has been perceived as a champion for financial innovation, and with good reason. He said that crypto "has been and could continue to be a catalyst for change in the fields of finance and money." 

However, he has made it clear that the crypto space is in dire need of additional regulation before it can move ahead. "For those who want to encourage innovations in crypto, I'd like to note that financial innovations throughout history don't long thrive outside of our public policy frameworks. ... If this field is going to continue, or reach any of its potential to be a catalyst for change, we better bring it into public policy frameworks."

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What the SEC chair's comments on crypto mean for a possible bitcoin ETF

Financial News 03 August, 2021 - 11:17am

"This asset class is rife with fraud, scams, and abuse in certain applications," SEC Chairman Gary Gensler said at the Aspen Security Forum on Tuesday.

"We need additional congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks."

Gensler addressed several aspects of the crypto business in his speech.

Digital tokens: Gensler said many digital tokens, because they are investment contracts, are offered and sold as securities and should be regulated as such. "I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight," he said. 

 "This leaves prices open to manipulation. This leaves investors vulnerable." He said he has urged staff to "continue to protect investors in the case of unregistered sales of securities."

 Crypto trading platforms: Noting that a typical trading platform has more than 50 tokens on it, Gensler said the platforms have "significant gaps in investor protection." The issue is whether any of those tokens are securities that would come under the purview of the SEC. "To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they meet an exemption," he said.

Stablecoins: Gensler noted that trading crypto-to-crypto was typically done using stablecoins, which are crypto tokens pegged or linked to the value of fiat currencies. Gensler is concerned these stablecoins may be used as part of a broader effort to sidestep anti-money laundering and tax compliance laws, and also affect national security. Gensler said these stablecoins may also be securities and investment companies and if so, should come under the purview of the SEC.

Bitcoin ETFs. Several companies have sought the SEC's approval for a bitcoin ETF, and all have been denied. Gensler noted, however, that several vehicles already invest in bitcoin, such as the closed-end Grayscale Bitcoin Trust and mutual funds that invest in bitcoin futures. Gensler said he anticipates companies will file for ETFs under the existing 1940 Investment Company Act, which regulates mutual funds and closed-end funds, and which "provides significant investor protections."

"Given these important protections, I look forward to the staff's review of such filings, particularly if those are limited to these CME-traded bitcoin futures."

Last week, ProShares went live with a mutual fund tracking bitcoin futures, the Bitcoin Strategy ProFund (BTCFX).

Gensler did not comment on the many bitcoin ETF applications that do not own bitcoin futures but instead seek to own bitcoin directly.

Gensler may be attempting to distinguish between ownership of bitcoin in the futures market, which is heavily regulated, and a bitcoin ETF that would involve the fund buying bitcoins through unregulated parties.

Custody of crypto assets. Gensler said the SEC was seeking comment on crypto custody arrangements by broker-dealers and relating to investment advisers. "Custody protections are key to preventing theft of investor assets, and we will be looking to maximize regulatory protections in this area," he said.

Gensler has been perceived as a champion for financial innovation, and with good reason. He said that crypto "has been and could continue to be a catalyst for change in the fields of finance and money." 

However, he has made it clear that the crypto space is in dire need of additional regulation before it can move ahead. "For those who want to encourage innovations in crypto, I'd like to note that financial innovations throughout history don't long thrive outside of our public policy frameworks. ... If this field is going to continue, or reach any of its potential to be a catalyst for change, we better bring it into public policy frameworks."

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The SEC needs more power from Congress to fully regulate crypto, Chair Gensler says

CNBC 03 August, 2021 - 11:15am

Securities and Exchange Commission Chairman Gary Gensler said Tuesday that Wall Street's top regulator needs Congress to grant it additional powers in overseeing a vast and ever-evolving cryptocurrency market.

Speaking about crypto at the Aspen Security Forum, Gensler said the SEC has "taken and will continue to take our authorities as far as they go."

"Certain rules related to crypto assets are well-settled. The test to determine whether a crypto asset is a security is clear," he said. "There are some gaps in this space, though: We need additional Congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks. We also need more resources to protect investors in this growing and volatile sector."

Gensler, who previously taught classes about blockchain and other financial technology at the Massachusetts Institute of Technology, has asked lawmakers to grant his agency the legal authority to oversee crypto exchanges.

He said many of the crypto coins were trading like assets and should fall under the purview of the SEC, which already has significant authority over digital assets..

Despite his deep knowledge of blockchain and cryptocurrencies, Gensler has made it clear that he intends to take a hands-on approach when it comes to new financial technologies. Capitol Hill has for months held hearings on how best to monitor the nascent market, now worth trillions, amid violent price swings and rapid growth.

Sen. Elizabeth Warren, for example, last week wrote to Treasury Secretary Janet Yellen to urge her to bulk up oversight efforts.

Warren, a member of the Senate Banking Committee and a longtime critic of the nation's largest banks, pressed the Treasury secretary to use her powers on the Financial Stability Oversight Council to bring about a safer crypto market.

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"FSOC must act quickly to use its statutory authority to address cryptocurrencies' risks and regulate the market to ensure the safety and stability of consumers and our financial system," the Massachusetts Democrat wrote in a letter to Yellen. "As the demand for cryptocurrencies continues to grow and these assets become more embedded in our financial system, consumers, the environment, and our financial system are under growing threats," she added.

Chief among regulators' concerns about crypto are its ability susceptibly to fraud and market manipulation.

The Federal Trade Commission reported earlier this year that consumers reported losing more than $80 million to crypto scams between October and March, with many of those losses stemming from underhanded scammers targeting small investors on social media, the FTC said.

"The American public is buying, selling, and lending crypto on these trading, lending, and DeFi platforms, and there are significant gaps in investor protection," Gensler said. "Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they meet an exemption. Make no mistake: If a lending platform is offering securities, it also falls into SEC jurisdiction."

Gensler on Tuesday did not offer comment on that potential for approving a bitcoin exchange-traded fund, a pending decision that many in the crypto market are anxiously awaiting.

Investors are closely following the status of an application by VanEck to list shares of its Bitcoin Trust on the Chicago Board of Exchange's BTZ Exchange. Regulators said in a letter dated June 16 that they would take additional time to seek comments from the public.

Bitcoin was last seen trading at $38,200, but has been volatile in recent months and in late July dipped below $30,000.

Republican SEC Commissioner Hester Peirce, known for advocating somewhat easier regulation of digital assets, told CNBC last month that she's frustrated with how slow the regulator has been to approve such an ETF.

Denying bitcoin ETF applications not only runs the risk of a double standard but also may leave thousands of investors with few, more-dangerous alternatives.

"The complications of not approving [an application] become stronger, because people are looking for other ways to do the same kinds of things that they would do with an exchange-traded product," she said. "They're looking at other types of products that aren't as easy to get in and out of, they're looking at companies, perhaps, that are somehow connected with bitcoin or crypto more broadly."

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Gensler Contemplating Robust Crypto Oversight Regime - BeInCrypto

BeInCrypto 03 August, 2021 - 06:12am

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Securities and Exchange Commission (SEC) Chairman Gary Gensler is looking to establish a robust cryptocurrency regulatory framework.

Gensler asked Congress to give the SEC legal authority to monitor crypto exchanges.

While primarily responsible for investor protection, Gensler says regulation will also provide clarity for the market.

Gravity Dex Protocol: Bringing DeFi to Cosmos

In an interview with Bloomberg, Gensler emphasized that his knowledge of cryptocurrencies would not preclude him from regulating them thoroughly. Gensler said he is “neutral on,” but “intrigued,” by cryptocurrencies, but that he’s “not neutral about investor protection.”

Although individuals are free to make their own investment decisions, Gensler stressed that the SEC had a responsibility to protect them from fraud. While acknowledging that the SEC already has broad authority, Gensler asked Congress to give the agency legal authority to monitor crypto exchanges.

Gensler remarked that technology has sparked economic progress throughout human history. He also sees this kind of potential from digital assets. However, he noted that the automobile industry didn’t fully take off until government regulations made driving safe enough for everyday use. Similarly, he says that the technology’s broader adoption depends on “bringing things inside.”

SEC Commissioner Hester Peirce has been a longtime advocate for cryptocurrencies and blockchain technology. She also feels that regulation will provide the clarity that many crypto investors are seeking. “A lot of people just want more clarity,” she says. “Society needs to have that discussion about what is the right regulatory framework.” 

Although Peirce also feels it’s “high time” the SEC approved a bitcoin exchange-traded fund (ETF), Gensler is in no rush. In fact, Bitcoin and cryptocurrency-related issues are probably not high priorities among 49 non-crypto policy reviews. Others have speculated that he wants to use the ETF applications as a means of getting more control over crypto exchanges. For his part, Gensler said that he thinks regulating crypto exchanges would be the easiest way for the government to manage digital token trading. 

Gensler also expressed concern over peer-to-peer lending on so-called decentralized finance (DeFi) platforms. If firms advertise a specific interest-rate return on a crypto asset, Gensler says this could bring the loans under SEC oversight. If platforms that pool digital assets are seen as akin to mutual funds, the SEC could potentially regulate them.

Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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