Cryptocurrencies are a $2 trillion industry. Can such a gigantic industry exist without regulation and control? Can it survive outside a “public policy framework”?
According to Gary Gensler, head of the US Securities and Exchange Commission (SEC), it can’t – at least not for long, because finance is about trust. About nothing else.
That means crypto exchanges must operate within the national regulatory framework to avoid jeopardizing their survival.
He compares crypto-asset trading to traditional banking when it comes to public policy requirements – they must maintain financial stability, guard against illegal activity (such as money laundering or terrorist financing), and safeguard investors.
SEC invites crypto exchanges
Recently, Gary snubbed the billion-dollar crypto industry with his proposal that crypto exchanges must now register with the SEC because some of them are classified as securities.
He invited them to partner with the SEC to better engage, improve services and “gain the public’s trust.”
He said that cryptocurrency platforms – in their size and nature – will no longer be relevant in five to 10 years if they do not operate within a public policy framework.
One declined the offer.
Cryptocurrencies are a challenge for public authorities
Cryptocurrencies are a gigantic business in the US.
But what financial regulator is willing to oversee their activities? None. Gary is now calling on Congress to exercise authority over crypto exchanges and make that clear.
Crypto is a highly speculative asset that is traded daily, but 95% of its activities have “sparse” investor protection laws. For this reason, they pose a challenge to regulators.
Financial laws can easily be applied to cryptocurrencies because of traditional brokers. Unfortunately, crypto investors trade directly with each other, eliminating the need for brokers.
Gary believes that regulators can still exercise authority despite the decentralized nature of crypto platforms.
He argues that cryptocurrencies and Decentralised Finance (DeFi) are an age-old concept. It existed at the beginning of the century – it’s just a variant of P2P (peer-to-peer) lending, but with technology. So regulators can still exercise their authority.
If there was a “company in the middle” between people lending money to each other back then, crypto exchanges need centralization too – to regulate mechanisms, fee models and incentives.
For Gary, it’s interesting to think about crypto trading in this way, especially knowing that cryptocurrency platforms are just software put on the internet.