28Garry Gensler's Plans for Regulating Crypto Exchanges from the U.S. SEC

Crypto Weekly

Garry Gensler's Plans for Regulating Crypto Exchanges from the U.S. SEC

According to SEC Chairman Gary Gensler, the agency is looking into how to regulate cryptocurrency trading exchanges, including how to separate out crypto market makers. Gensler also argued that most cryptocurrencies are likely securities, so they should be regulated accordingly.

"Tokens are securities and are governed by the same market integrity laws as other securities," according to Gensler at the Penn Law Capital Markets Association Annual Conference on Feb. 16. “The crypto market should not be treated differently just because it uses a different technology... We already have robust mechanisms to protect investors on platforms. We ought to apply these same mechanisms to the crypto market."

As part of its investigation, Gensler said the agency is looking into how crypto trading platforms can also act as market makers, allowing them to trade for their own accounts on the other side of their customers. In addition to determining whether the market makers should operate separately from those platforms, it is determining whether they can do so.

The SEC is also investigating whether protections offered to investors on traditional exchanges are applicable to

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crypto after someone asked if exemptions for so-called alternative trading systems (ATS) could be applied to crypto. Gensler says there is a major difference between crypto trading platforms and traditional brokers in that millions of retail customers directly buy and sell on crypto trading platforms.

Crypto trading platforms should be registered with the SEC and regulated like exchanges. "It is essential that crypto tokens that are securities are registered with the SEC," Gensler said. "Crypto token issuers must register with the SEC and comply with our disclosure requirements, or qualify for some type of waiver."

As part of Gensler's latest warning to the crypto industry, he urged crypto players to remember that the SEC recently charged BlockFi with failing to register its retail crypto lending product. This suggests the SEC may take enforcement action against firms that fail to comply with the SEC's requirements.

As part of this coordination, Gensler said the SEC is looking into how to support the CFT's supervision of crypto trading platforms where commodity tokens and security tokens are traded. In addition, Gensler asked the staff of the SEC whether it would be prudent to separate out customer assets held by exchanges.

Earlier this month, the Commission announced new cryptocurrency accounting standards designed to protect crypto assets from hacking losses. More trading platforms are allowing users to deal in crypto, but hacks continue to occur. According to Chainalysis, over $14 billion was stolen last year.

According to Gensler, crypto is a security under both the Congressional and Supreme Court definitions of security. When an investment is made in a common enterprise with a reasonable expectation of profit, the Howey test requires a contract to be formed. "These decentralized platforms may very well meet the definition of securities in many cases," he said. Gensler's case for safeguards on stablecoins. Besides supporting regulating stablecoins, Gensler

also claimed that the two biggest stablecoins by market capitalization, which were created by crypto trading and lending platforms, are often owned by the platforms and investors have no direct right of redemption.

Ultimately, more oversight is needed on issues such as conflicts of interest and market integrity. A number of the Biden administration's concerns about stablecoins were echoed by Gensler, including concerns about monetary policy and financial stability.

Regulators should also prevent stablecoins from being used for illicit purposes, such as money laundering, tax compliance, and sanctions. About 80% to 85% of trades and loans occur on crypto trading platforms and lending platforms using stablecoins pegged to fiat currencies. 

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Peter Thiel Predicts End of Fiat as Central Banks Go Bankrupt, and Crypto Replaces Them

Peter Thiel, PayPal co-founder, predicted Bitcoin would surpass the value of gold and eventually rival the stock market when its price reached 100 times what it is today. The billionaire investor said shadowy and malicious figures within traditional finance and politics are holding back cryptocurrency during his appearance at the Bitcoin 2022 conference in Miami on Thursday.

"The governments are destroying their own economies," he said. “The era of fiat is coming to an end," he added. "It's always hard to say where Bitcoin will go from here. With its current price of $43,000, where will it go? Bitcoin, in my opinion, is the best and most honest market in the world. I'm still hopeful that Bitcoin will grow over 100 times."

In recent years, Mr. Thiel has been an outspoken advocate of Bitcoin, praising its decentralized nature and fixed supply that renders it anti-inflationary. As one of the keynote speakers at what is being dubbed the largest Bitcoin event in history, Mr. Thiel threw $100 bills into the crowd. There is a common narrative among crypto enthusiasts that Bitcoin's underpinning technology makes it a safe haven asset that serves as a store of value despite its price volatility. The founder of PayPal, Mr. Peter Thiel, elaborated on this idea by suggesting that Bitcoin could go far beyond this by replacing the US dollar as the world's reserve currency and generating greater returns on investment than any other stock or asset. He said the real competitor for Bitcoin isn't Ethereum, gold, or even the S&P 500 as a whole, but the stock market in general. Bitcoin is not measured against gold but against equities, and the question is, why cannot Bitcoin and equities be at parity? "Enemy number one," he said, “was Berkshire Hathaway CEO Warren Buffett, claiming that he is a "sociopathic grandpa." He then listed a host of other political, media, and financial people he deemed intent on holding Bitcoin back.

"Why has Bitcoin still not reached $100,000 or $1 million? What does it take to achieve this?" he asked. "In one dimension, this is a political question, whether the movement succeeds or whether its opponents succeed in destroying it." Thiel also included Jamie Dimon, CEO of JPMorgan Chase, and Larry Fink, chairman of BlackRock.

"There's always the sense that if you're a money manager, you want to pretend that it's complicated to invest. And if all you have to do is buy Bitcoin, that's ridiculous. All these people are out of business," he said. "It is the finance gerontocracy that runs the country versus a revolutionary youth movement. And we have to go out from this conference and take over the world." 