SEC’s chairman seeks more regulation for crypto

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One-liner: The chairman of the Securities and Exchange Commission said that investors need more protection in the cryptocurrency market, which he contends is rife with fraud, scams and abuse.

Relevance: The crypto market is in essence volatile, so that translates to either big losses or gains, regulation is limited and whether it will harm or benefit the ecosystem remains to be seen.

Areas of concern: Gary Gensler, was appointed by President Joe Biden to lead the body that regulates securities markets, listed several areas where crypto needed to be reined in or regulated, particularly with regard to money laundering, sanctions, tax collection and extortion via ransomware.

Protection: “Right now, we just don’t have enough investor protection in crypto, frankly, at this time, it’s more like the Wild West.” - Gensler, SEC

Unregulated: Digital currencies, like Bitcoin, are largely unregulated by major govts. However, in June China ordered cryptocurrency mining operations shut down and banks started refusing to help customers with Bitcoin transactions.

More agency: Although the SEC has brought and won dozens of cases against fraudsters, Gensler said the agency needs more authority from Congress — and more resources — to regulate the crypto markets.

On crypto: Beyond the problems, Gensler said innovation in digital currencies “has been and could continue to be a catalyst for change in the fields of finance and money.”

  • Gensler opened his remarks by saying he was not speaking on behalf of the SEC or its staff, but that he personally believes that regulation of cryptocurrencies would fall under his agency’s purview

Variable: Currencies such as the dollar or euro fulfill several key functions, Gensler said; they are a store of value, a unit of account, and a medium of exchange. By contrast, Bitcoin and other cryptocurrencies are for now mostly highly speculative investments.

Defining security: When Congress defined what security was in the 1930s, Gensler said, one of those definitions was as an investment contract — when “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”

Jurisdiction: That definition, should apply to crypto. Gensler noted that his predecessor at the SEC, Jay Clayton, testified in 2018 that he believed ICOs, or initial coin offerings, were securities and that “we have jurisdiction, and our federal securities laws apply.”

Unregistered: Gensler said many crypto tokens are unregistered securities and don’t come with market oversight or proper disclosures to educate investors. That leaves prices open to manipulation and investors unprotected, he said.

  • “These products are subject to the securities laws and must work within our securities regime, if we don’t address these issues, I worry a lot of people will be hurt.” - Gensler

Valuation: The combined market capitalization of all cryptocurrencies is currently more than $1.5tr.

Historic: Tuesday’s event marked the first time the non-profit Aspen Institute included a discussion about cryptocurrency in the forum on national security.

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