Crypto: It's the SEC, we're here to help
By Claire Hunte
10:06, 6 August 2021
When SEC chair Gary Gensler made a speech at the Aspen Security Forum about cryptocurrencies on Monday, it left eddies in its wake. Was Gensler signalling a crackdown on digital coins?
Gensler first, as is his habit, made clear at the start of his speech that his views were his own and not those of the SEC. He then proceeded to talk about the organisation he leads and crypto’s intersection with national security.
A declarative statement, then, with all the strength of a snowflake in hell – which pretty much most media ignored, with headlines this week touting the SEC's potential or imminent regulatory strike, depending on your publication of choice.
Gensler, who taught occasional courses on cryptocurrencies at MIT, spoke in the language of a frontiersman, noting the US regulator’s investor protector role.
“Right now, we just don’t have enough investor protection in crypto," he said. "Frankly, at this time, it’s more like the Wild West.”
A saviour rolling into town?
“This asset class is rife with fraud, scams and abuse in certain applications. There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced and complete information,” he added.
Then, in the spirit of the sheriff in an old western film, Gensler declared: “If we don’t address these issues, I worry a lot of people will be hurt.”
Roll tape as reactions flowed in about just what the SEC would do next to bring law and order to the world of cryptocurrency.
It's the SEC, we're here to help
For some, Gensler’s background muddied the waters: is he with us or against us, seemed the binary question. The SEC chair certainly sounded tough, in the mould of President Teddy Roosevelt's oft-quoted “speak softly and carry a big stick” notion. The stick being the power of the SEC, which Gensler wants to use to help unsuspecting investors from being fleeced.
To more middle-of-the-road pundits, Gensler’s resumé speaks of someone more friend rather than foe. After all, he taught courses at the Massachusetts Institute of Technology (as he terms it) on “the intersection of finance and technology” which included blockchain, cryptocurrency and money.
At the same time, his CV (former banker at Goldman Sachs) does not play well for those in the crypto sphere who would prefer anyone offering oversight over a space created specifically to require none to take a hike!
Still, Gensler's familiarity with the digital coin space is a comfort for a few, who prefer some oversight to no oversight if it means greater investment in a small but growing segment of the crypto and blockchain market, the value of which topped $2trn a few months ago.
Bring out the champagne
Paul Brody, global blockchain leader at Ernst & Young, was thrilled at the Chair’s remarks. He drew a contrasting picture between the size of the crypto and blockchain market and that of the $100trn global securities market, and suggested that the complexity of the blockchain governance ecosystem and resulting uncertainty “held back the market tremendously”.
Brody suggested Gensler’s remarks could be a sign that the sector could unlock some of those funds in global securities, and said: “If we want that $98 other trillion to be put to work in DeFi and the blockchain ecosystemm then this is a really bullish signal.
"He really understands what he’s talking about, he’s incredibly reasonable. I was wondering why people weren’t popping the champagne corks yesterday after his remarks.”
There's crypto in them there hills
If celebrations were happening in the cryptosphere, they were muted. Gensler declared that in terms of policy he's "technology-neutral" but personally he seems to worship at the altar of technology, given his background and interests.
He still had this to say: "Primarily, crypto assets provide digital, scarce vehicles for speculative investment. Thus, in that sense, one can say they are highly speculative stores of value. These assets haven’t been used much as a unit of account.
"We also haven’t seen crypto used much as a medium of exchange," Gensler continued. "To the extent that it is used as such, it’s often to skirt our laws with respect to anti-money laundering, sanctions, and tax collection. It also can enable extortion via ransomware, as we recently saw with Colonial Pipeline."
Gensler figures it's fine for people to go ahead and invest in those digital scarce vehicles speculatively if they want. After all, he says, "Good faith actors have been speculating on the value of gold and silver for thousands of years."
However, he's clear that the regulator's role must be to protect investors, many of whom are vulnerable to price manipulation from a "crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight."
Bringing crypto within regulatory arms' length
His speech discussed how far the SEC's regulatory reach should go, and explained that in his view it needed to center on crypto trading, lending and DeFi platforms. "Regulators would benefit from additional plenary authority to write rules for and attach guard rails to crypto trading and lending," he said.
As part of the pledge to protect consumers and through ensuring financial stability protect national security, Gerson pointedly ask for Congressional authorities to act to address gaps where crypto sat astride of regulatory frameworks rather than within.
Bitcoin unmoved
Unlike the hardline stances taken by other governments – such as China’s most recent crypto crackdown, this time on mining – the effect of Gensler’s speech on the price of bitcoin was muted. The price on 3 August held around the $38,000 mark, although it has swung to above $40,000 in early trading on Friday.
The SEC is taking a closer look at the market structure. A new generation of investors are getting their investment and guidance on social media platforms like TikTok and Reddit. The chair of SEC is going where his audience is: he has recently started engaging on Twitter (beginning April this year) and has managed to attract a following of just over 139,000.
Following his speech, a number of those followers on Twitter expressed exasperation: some wanted him to fix the financial markets first before pursuing crypto, and quite a few were very irritated with the SEC's chase against Ripple. But perhaps this follower summed up the feeling best:
When I heard you got the Top job at the SEC, I was hopeful for the crypto world, as a leader you haven’t done to make changes inside the SEC, slowly your be coming one off the old fashion leader. Don't be a number create a new world make it possible. But sofar Very disappointed
— OzXRP (@Ozcanay93468289) August 4, 2021
Read more: Ripple Labs can question ex-SEC chief in court over XRP
Related topics