The U.S. Securities and Exchange Commission (SEC) is ramping up its efforts to regulate the crypto industry, citing concerns about investor protection and market integrity. The SEC chair, Gary Gensler, has repeatedly called for more oversight of crypto assets and platforms and has announced the allocation of 20 additional positions to the unit responsible for policing crypto markets and cyber-related threats.
In a recent speech, Gensler said he would work with Congress to create new legislation that would increase crypto oversight and compared the crypto industry to the early days of the automobile industry. “Detroit would not have taken off without some traffic lights and cops on the beat,” he said. He also expressed scepticism about the claims of decentralization and innovation made by some crypto proponents and warned that many crypto products and services might be subject to existing securities laws.
One of the main targets of the SEC’s scrutiny is stablecoins; cryptocurrencies pegged to the value of a stable asset, such as the dollar. Stablecoins have grown rapidly in popularity and market size, reaching a total capitalization of $150 billion. They are widely used to settle trades and access decentralized finance (DeFi) platforms, which offer financial services without intermediaries. However, Gensler said that stablecoins “have features similar to, and potentially competing with, money market funds, other securities and bank deposits,” and raise important policy issues. He called for more restrictions and transparency for stablecoin issuers and platforms.
The SEC’s aggressive stance has sparked backlash from some crypto industry players, who argue that the agency is overstepping its authority and stifling innovation. Some have even threatened to leave the U.S. if regulators don’t clarify their approach to cryptocurrencies. For example, according to its CEO Brian Armstrong, Coinbase, the largest U.S.-domiciled crypto exchange by trading volume, could leave the U.S. if regulators don’t provide more guidance on crypto regulation. Armstrong also accused the SEC of engaging in “intimidation tactics behind closed doors” and trying to block Coinbase’s plans to launch a lending product allowing users to earn interest on their crypto holdings.
The SEC’s actions reflect its growing recognition of the importance and challenges of the crypto industry, which has evolved from a niche phenomenon to a mainstream force in the global financial system. As more investors and consumers access the crypto markets, the SEC faces the difficult task of balancing its mandate to protect investors and ensure fair and orderly markets with its role as a facilitator of innovation and competition. How the SEC will achieve this balance remains to be seen, but it is clear that the agency will not shy away from asserting its authority over the crypto space.
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