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Even the most ardent cryptocurrency advocates can understand why the Securities and Exchange Commission is targeting the cryptocurrency industry. Several Execution. From the Three Arrows Capital bankruptcy to the FTX fraud, the events of the past year were bound to come under some scrutiny, and the industry has always been too kind to outright scammers. .
However, recent spate of enforcement actions by the SEC and US government agencies have fallen short of the standard of protection. Rather, a close review of everything from the bank crackdown earlier this year to endless regulation by enforcement agencies strikes a different chord. It seems as if the US government is taking action to protect the financial services industry from disruption.
Evidence A of this phenomenon is the SEC’s massive lawsuit against Coinbase, which has long been recognized as one of the “good guys” in the cryptocurrency industry. The company’s client list includes large asset managers, Fortune 100 companies, and the US government itself, and none of them have complained about the completeness of its services. Unlike FTX, Coinbase has never cheated its customers. We are not based in an offshore tax haven and have never been hacked. In fact, the company has repeatedly said it wants to be regulated, even suing the SEC for a roadmap on how to do so.
Related: Crypto Enthusiasts Make a Mistake Targeting Gary Gensler
What is the reward? A 100-page lawsuit full of contradictions, including that some Layer 1 tokens are securities and others aren’t. Imagine a town where speeding tickets are issued frequently even though they don’t tell you the speed limit. No one would take such a place seriously. SEC Chairman Gary Gensler has repeatedly said his agency has all the powers necessary to make the call, yet it remains unclear whether Ether (ETH) is a security. don’t know.
New technology often clashes with old rules, and regulators don’t understand technology, so they can struggle to understand startups at first. Gensler has no such excuse. He was a visiting lecturer at his MIT Digital Currency Initiative, where he taught a popular class on blockchain. So how did he come from that level of knowledge and belief to argue that we don’t need cryptocurrencies at CNBC?
guarded by gensler who, but it’s certainly not the American investors who will ultimately be out of service providers. Also, it’s not cryptocurrency companies that are moving to friendlier jurisdictions. Cryptocurrencies threaten Wall Street incumbents. Considering the increasingly volatile regulatory approach, it is difficult to draw any other conclusions. in short:
- The United States is one of the few major countries that does not have a Bitcoin Exchange Traded Fund (EFT). Several companies attempted to issue, but the SEC refused to approve any of them, arguing that the cryptocurrency market is unregulated. This is an odd defense, as the agency has already approved future-collateralized ETFs that buy derivatives tied to those markets, products that are certain to underperform with additional friction. However, they maintain links with existing companies like the Chicago Mercantile Exchange and its associated brokers.
- The SEC has designated stablecoins as securities, a decision that renders them unusable as payment products. Stablecoins should not be controversial. They use a familiar model, widening the dollar range and creating additional demand for US Treasuries. The only bad for them are the traditional banks and centralized payment providers that dominate the industry.
- The agency argues that publicly traded companies that manage cryptocurrencies for others should treat them as liabilities on their balance sheets and set up additional reserves. While this approach does not apply to other assets, offering cryptocurrency custody is prohibitively expensive for all but the largest custodians.
- Cryptocurrencies offer new ways for startups and decentralized projects to raise money from potential customers and users, reducing funding costs and expanding financial inclusion. But the SEC has repeatedly advocated a costly registration regime that would force cryptocurrencies back into the investment bank-led funding system.
- Trying to cram digital assets into existing regulatory frameworks designed for stocks and bonds would limit their usefulness, but would require licenses (licenses that were virtually impossible for start-ups to obtain). A boon for Wall Street incumbents who already have the only exception? The very dubious Prometheum Capital acquired a useless license to prove this point.
- A recent ruling on what types of service providers qualify as “eligible custodians” aims to deprive state financial authorities of their ability to charter smaller players who tend to be crypto natives. It seems
- After filing a civil lawsuit against Binance, the world’s largest cryptocurrency exchange, the SEC took additional steps to require the government to freeze all assets of domestic entities, effectively putting them out of business.
- The Coinbase lawsuit argues that offering the software to those who want to store their crypto assets should be limited to registered broker-dealers. If this rule is upheld, it will effectively disable self-custody, the killer app for cryptocurrencies, and put all investors back in the arms of intermediaries.
Enacting strict rules can create a powerful moat for incumbents. This is the dirty secret of any highly regulated industry. Large companies may publicly complain about the cost of compliance, but privately they appreciate the competitive advantage of being on the other side of the regulatory divide. This is one reason why highly regulated industries like finance and healthcare rarely have the highest turnover rates.
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Standing up for the status quo is also the only plausible explanation for why the SEC is opposed to Congress fixing the problem through legislation. Gensler said the securities laws passed in the 1930s and the Howie Test, a Supreme Court decision handed down before the invention of the transistor, gave his agency all the clarity it needed to regulate cryptocurrencies. He repeatedly states that he has attained sexuality. Other countries in the world have not adopted this approach, perhaps because traditional service providers are not as prominent as the United States.
Clearly, some regulators in the US, including other SEC commissioners, disagree with this approach.
Five years ago, in a speech at an MIT blockchain event, Gensler said: Said “Blockchain technology” had “real potential to transform the world of finance.” He added, “It has the potential to reduce costs, risks and economic rents in the financial system.”
The technology hasn’t changed in that time, but Gensler has. It is natural to ask whose interests he is defending.
Omid Malekhan Adjunct professor at Columbia Business School, Rebuilding Trust: The Curse of History and the Crypto Cure for Money, Markets and Platforms.
This article is for general informational purposes and is not intended, nor should it be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views or opinions of Cointelegraph.