SEC Chair Says Crypto-Assets Are Securities, Warns Investors of Risks
Commentary by Steven Lofchie
In an interview with CoinDesk, SEC Chair Gary Gensler reiterated his view that most crypto-assets are securities.
Mr. Gensler argued that, through cryptocurrencies, the public is "investing for a better future, based upon the efforts of others . . . which is the hallmark of investment contracts, which are securities." He added that "most of the tokens [in the crypto markets] meet the traditional standards that [the] Supreme Court has laid out, and that [the SEC has] a role to help protect investors and instill and enhance trust in these markets."
Mr. Gensler said that, while not all crypto tokens currently on the market meet the definition of a security, the majority do. As such, he said, the service providers, such as crypto exchanges and lending platforms, should be required to register with the SEC and comply with federal securities laws. He emphasized the need for sound digital asset regulation in order to avoid repeating the current "crypto winter." He also noted that at the beginning of the year, a significant number of cryptocurrency platforms filed for bankruptcy or froze customer funds due to a lack of available liquidity.
Mr. Gensler warned that the "centralized actors" in cryptocurrencies, including exchanges and lenders, are not subjected to the same compliance standards otherwise required in other markets. He cautioned that investors are not only taking a risk by investing in unregulated cryptocurrencies, but incur additional risk if they assume that trading platforms are fulfilling their obligations. Mr. Gensler said that by registering with the SEC, exchanges will be required to comply with regulations that give investors the benefit of disclosure and other protections.
Mr. Gensler encouraged unregistered cryptocurrency exchanges and lenders to register as securities dealers with the SEC to best protect investors.
Commentary
Mr. Gensler insists, time and again, on "winning" the easy argument that digital assets should be subject to some form of regulation. That crypto exchanges should just register with the SEC as "national securities exchanges" is wholly impractical. Those regulations are simply inconsistent with the market. In order for a national securities exchange to list a security, that security and the issuer must themselves be registered with the SEC. Of course, digital assets are not registered in that way, and for most, doing so would be impossible. So the challenge for Mr. Gensler is to devise a workable regulatory scheme; thus far, it is not a challenge he has taken up.
Related Articles
-
SEC Chair Gary Gensler contended that the "vast majority" of cryptocurrency tokens on the market are securities subject to SEC regulation.
-
In a civil Complaint alleging cryptocurrency insider trading, the SEC asserted that nine of the 25 cryptocurrencies implicated in the alleged scheme were "crypto-asset securities."
-
In testimony before the House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, SEC Director of Enforcement Gurbir S. Grewal stated that the Division is focusing enhanced resources on protecting investors in digital asset markets.
-
Responding to recent legislative efforts which would empower the CFTC with primary regulatory oversight over crypto-assets, SEC Chairman Gary Gensler argued that crypto-assets being offered to the public have characteristics of an investment contract and are subject to securities regulation and enforcement.
-
SEC Chair Gary Gensler laid out the case for more extensive SEC regulation of crypto trading and lending platforms, stablecoins and tokens.