Gary Gensler Wants Crypto Investors to be Protected, Calls for Regulation
The cryptocurrency industry would inevitably attract regulatory scrutiny along the way.
This industry has grown too large and too fast for financial agencies in America to ignore. It feels like regulators will be faced with the age-old dilemma of whether to overregulate and stifle innovation or leave crypto to operate by rules of natural selection, potentially at the expense of some consumers.
The primary agency responsible for this function is the Securities and Exchange Commission (SEC). The SEC chair, Gary Gensler, appeared before a testey senate panel in mid-September to testify before Congress about his Agency’s approach to crypto regulation.
The Senate Banking Committee Hearing
Speaking before the Senate Banking Committee, Gensler called for the registration of most digital assets on crypto exchanges to register with the SEC to protect consumers. He believes that the current regulatory framework does not protect investors enough and that this industry is rife with fraud and other forms of consumer abuse.
This tone certainly caught the attention of the wider crypto community. There has been growing acceptance of the status of cryptocurrency in the modern financial industry. Investors from Wall Street who didn’t look at crypto investments twice before 2020 are now scrambling for a piece of the pie.
Gensler focused his criticism on the fact that crypto is highly speculative. Mega US Exchange, Coinbase, announced that it had received the threat of a lawsuit by the SEC if it continued allowing investors to continue earning interest in crypto holdings. The SEC’s combative attitude was very apparent to XRP traders after it sued Ripple Labs for alleged securities violations.
Crypto Regulation Creating a Political Divide
The SEC chair appears to be taking the industry back to a place where stakeholders thought they had gone past. He clarified that the SEC would retain the classification of some of these assets as commodities and others as securities. That is always a test subject, and some lawmakers like Pennsylvania Senator Pat Toomey took him to the task. Sen. Toomey wondered why the Agency was yet to announce what criteria it would use to determine which tokens were securities and which ones were not.
The political angles that the Capitol Hill debates are fascinating. Massachusetts senator Elizabeth Warren thinks that unpredictable fees in crypto trading and investments create an avenue for regulators to step in and lay down the gauntlet for this industry.
Meanwhile, Montana Senator Steve Daines thinks that regulatory overreach could drive crypto investors abroad. This sentiment has given the manufacturing Exodus that the US has experienced for decades.
Senators Toomey and Lumis (WY) are emerging as the strongest champions for positive crypto regulation. They are not like some of their colleagues looking to place a stranglehold on crypto because of overblown fears.
Gensler is looking to prescribe crypto regulations that are suitable for traditional finance. Hopefully, his appearance before Congress will be a catalyst for more regulatory clarity in this industry, but not in the direction he hopes for.
He has only spent five months at the helm of the SEC. His predecessor, Jay Clayton, was also famously hawkish on crypto, only to turn around and join an Israeli-based crypto custodian focused on institutions as an advisor. His cynical move represents the duality of regulators who recognize the inherent power of crypto assets like Bitcoin yet are hesitant to make the regulatory environment clear and suitable.
Self-Regulation Has a Fundamental Role in The Future of Crypto
The blockchain is an inherently self-regulating mechanism. No single entity is in charge, and transactions are transparent to the whole community.
That is a perfect example of technology working to its ends. Even amidst the ICO era that brought the significant negative press to crypto, coins without substance died a natural death. There is the incredible toll the fraud took on victims that is inexcusable.
Nonetheless, there is a need to involve the leading players in crypto in coming up with a suitable regulatory regime. These people have carried this sector for its impressive first decade and need to be part of the dialogue. They include exchange operators, blockchain developers, significant miners, trading brokerages, and other critical stakeholders in fundamental aspects of crypto commerce.
Time To Accept Bitcoin as An Enduring Asset
Gensler tried to clean up by stating that he was not a crypto minimalist and only wished to fit crypto into a novel investor protection program that Congress provided.
One of the biggest reasons Congress appears to be behind the times is that few senators bother to understand what Bitcoin is all about. You would think that after the enormous rally of 2020, enough of them would take notice and have regulatory progress. Instead, only a few appear to be taking a line of questioning consistent with the promotion of crypto.
Inevitably, crypto will have its fair share of critics among lawmakers. Some like Sen. Warren chose to focus on the illicit uses of crypto as though cash is only used for charitable purposes. It is a currency, for crying out loud. Some will inevitably use it to conduct their nefarious acts, as is the case for all money.
If there are anti-money laundering regulations, they should be reasonable and not try to shut down cryptocurrency usage entirely. Similarly, Congress should ensure that any attempt to restrict Bitcoin mining is rational. China has already shown the unfortunate use of state power to kill an entire industry. Most of those miners are relocating to jurisdictions such as the USA.
The American government can choose to follow the Chinese route or nurture this industry. Solutions such as providing incentives for crypto entrepreneurs to invest in renewable energy should be on the table.
In short, Bitcoin is a dynamic and transformational asset. It is unfortunate to analyze it from only one lens, especially when in a position of significant regulatory authority. This asset does not serve as a threat to the role of the US Dollar but is instead an asset with no allegiance that can transform the way finance works.
Millions of Americans have opportunities and purpose thanks to the crypto sector. It is a narrow window to gain a competitive advantage as a crypto market, and the US should not voluntarily relinquish this through regulatory overreach.
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