The US Securities and Exchange Commission appears to be adopting a softer-than-expected approach when it comes to regulating the crypto space as indicated by the comments made by the agency’s Chairman, Gary Gensler, during an interview with Yahoo Finance aired last week
Gensler was first asked about the SEC’s stance on recent events in the industry, like the failures of several crypto lending platforms such as Celsius Network and Voyager Digital. Both of these companies, at different times, stopped customers from withdrawing their assets, leaving them with few options to get their money back after their collapse.
The Chairman of the regulatory agency first commented on the above-average yields offered by these platforms and questioned the public’s decision to trust them outright despite the fact that even on the surface they look like “too good to be true” schemes.
Gensler emphasized that any company raising money from the public or pooling assets from investors should be considered an investment fund under the prevailing securities laws in the country and, hence, the tokens these platforms encourage investors to deposit to be rewarded may be treated as securities.
However, he mentioned that some differences exist between equities and cryptos and that justifies the creation of specific rules for these particular offerings.
“Just as there’s difference between asset-backed securities and an equity offering, there may be differences here as well”, Gensler stated.
Gensler Cites BlockFi Fine as Precedent for SEC Enforcement
In regards to why the SEC has not acted more promptly to either prevent the collapse of these firms or protect investors from being affected by their practices – i.e. unilaterally pausing withdrawals – the agency’s head stated that there are rules in place to regulate the operations of these platforms but most of them are considered non-compliant.
Gensler commented that they have been encouraging these providers to reach out to the SEC so they can be briefed about the kinds of disclosures they should be adding to their services and terms of use so they are in full compliance with the country’s securities laws.
“The person raising the money and selling you those financial assets ought to not defraud you, ought to give you the information so you can make your decisions”, the SEC Chairman commented.
As to why the SEC has not been more aggressive in their enforcement of these alleged rules, Gensler pointed to a $100 million fine imposed on crypto exchange BlockFi in February this year for “failing to register the offers and sales of its retail crypto lending product”.
In the press release that announced the measure, the SEC itself stated that this was a “first-of-its-kind” action, meaning that the agency’s efforts to regulate the space are a bit slow compared to the pace at which the industry has grown.
What are the SEC’s Plans to Protect Investors from Being Defrauded?
Moving forward, the SEC is focusing on refining its rules pertaining to three types of firms within the crypto space: exchanges, crypto lending platforms, and broker-dealers. Additionally, Gensler commented that stablecoins are considered “poker chips” used on the crypto market primarily to earn yield via these platforms.
The Chairman of the agency hinted that they may be treated as money-market funds initially due to their resemblance to this product as an interest-bearing financial instrument rather than being treated as a mean of exchange for paying goods and services.
For the time being, there has been no official statement from the regulatory agency in regards to the bankruptcy of Celsius or Voyager Digital. Moreover, the Chairman has also not commented on the Three Arrows Capital incident despite the significant losses that the demise of this hedge fund has caused to both investors and firms in the space.
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