Chairman of the US Securities and Exchange Commission (SEC), Gary Gensler, said in a Thursday speech that companies facilitating the cryptocurrency market should register with the Agency just like other market intermediaries.
The SEC Chair stated that intermediaries in the crypto market provide various functions that fall under the purview of the SEC, including operations as an exchange, broker-dealer transactions, clearing agents, and custodians’ duties, which is why they should be registered accordingly.
Gensler went on to invite the cryptocurrency token providers saying, “If you fall into any of these buckets, come in, talk to us, and register,” while addressing the audience of attorneys in Washington, DC. “The commingling of the various functions within crypto intermediaries creates inherent conflicts of interest and risks for investors,” he added.
Additionally, he made it clear that there wasn’t any more a need to develop specific rules for the crypto industry and that securities laws do not conflict with anything relevant to cryptocurrency markets.
Gensler said he would back Congress’ decision to give the SEC’s sister institution additional control over digital currencies like crypto. He went on to say that the Commodity Futures Trading Commission is eager to work with Congress to improve its ability to monitor and oversee “non-security tokens and their intermediaries.”
While this is not the first time Gensler has made such remarks on crypto lenders falling under the SEC’s purview, his Thursday speech shed more light on other cryptocurrency market actors that SEC believed to fall under their jurisdiction.
While Gensler has repeatedly stated that crypto lenders fall under the SEC’s purview, his recent remarks in the September 8 speech provide much-needed detail on other crypto market actors that SEC believes fall within its jurisdiction.
Gensler indicated that he had directed SEC workers to work with crypto intermediates to ensure that all their operations were registered to prevent conflicts of interest. This may include separating them into separate legal bodies.
However, he added that the SEC may need to be creative in enforcing current disclosure regulations and that the SEC’s principles allow for other cases of customized product disclosures.
Regardless, the comments spooked crypto market lenders who had hoped to avoid the costly requirements typically associated with SEC registration, including disclosures, risk management controls, and capital and liquidity minimums. However, whether these firms will voluntarily comply or not is it is yet to be seen.
Why the Fuss?
In his address, Gensler asked unregistered exchanges, both centralized and decentralized, to become compliant, as well as cryptocurrency and stable coin owners to “get their tokens registered and regulated.”
This comes after the pressure by bitcoin aficionados, including some members of Congress, was directed at the US Commodity Futures Trading Commission (CFTC) rather than the Securities and Exchange Commission (SEC). However, the former CFTC Director Gensler, who served from 2009 to 2014, also admitted that some currencies, such as bitcoin, may not fully qualify as securities.
According to Gensler, “in the event of a limited number of crypto non-security tokens, they could fulfill some but not necessarily all of the Howey Test or other conditions of a security and may not be securities.”
He went on to say that Bitcoin, the first cryptocurrency, is sometimes referred to as “digital gold,” which may be traded like a precious metal, a speculative, rare digital asset and that it should be largely governed under commodities regulations rather than the securities system.
Impact on the Market
Despite the significant shifts in the cryptocurrency markets popping up almost every day, the market seems to be only getting more bullish about cryptocurrencies.
We say so because, at 11:40 a.m. Easter Time on Thursday, Ethereum (ETH -6.51%) was up 6%, Bitcoin (BTC -5.11%) was up 2%, and Solana (SOL -6.37%) was up 7.3% in the past 24 hours. These significant currencies have singlehandedly increased the value of the whole cryptocurrency market.
Although the developments have been positive, after the event sponsored by the Practicing Law Institute on September 8, the fluctuations are, in a way, typical volatility. Still, investors must watch what authorities do in the cryptocurrency space. Investors are typically returning to cryptocurrencies, and the main cryptocurrencies are leading the way. However, specific tokens are expected to become securities at some point, and firms will also be required to register with the Commission. All of this is the outcome of the crypto industry’s growth.
Subsequent Developments
Since Securities and Exchange Commission (SEC) Chairman Gary Gensler’s remark, regulations appear to be the market’s overriding topic, with confusing signals for the cryptocurrency industry. After Gensler, Michael Barr, a governor on the Federal Reserve Board of Governors in charge of managing bank supervision in the United States, spoke, stating that he was encouraging Congress to act on stablecoins. According to Barr, stablecoins may constitute a systemic risk, so investors should understand exactly what they own and how they work. Despite the possibility of greater scrutiny, Barr does not appear to be anti-cryptocurrencies.
And on the brighter side, regardless of the SEC Chair’s speech, there seems to be a desire to establish regulatory solutions for the industry that will foster innovation. For instance, Coinbase, which attempted to collaborate with authorities earlier, is actively defending the industry by contributing to the Tornado Cash case. However, for the time being, this may give it a favorable communal impression.
Gensler’s overarching message was that there is no need for additional laws or legislation because existing standards encompass crypto activities. In his address, Gensler mentioned stable coins as another example of why investor safeguards are essential.
According to Gensler, stablecoins may qualify as securities depending on how their peg is managed if they pay the interest, and how they are traded. In addition, he stressed that this is not a comprehensive list.
The key conclusion is that when determining whether a product is a crypto security token, a crypto non-security token, or another instrument, it is crucial to examine the facts and circumstances rather than the label.
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