Cryptocurrency is a $2 trillion industry. Can such a gigantic industry exist without regulation and scrutiny? Can it survive outside of a ‘public policy framework’?
According to Gary Gensler, head of the US Securities and Exchange Commission (SEC), they can’t survive — at least not for long because finance is about trust. Nothing else.
That said, crypto exchanges need to work within the nation’s regulatory framework to avoid putting their survival at risk.
He compares trading crypto-assets to traditional banking when it comes to public policy requirements — they need to maintain financial stability, guard against illicit activity (such as money laundering or funding terrorism), and protect investors.
“Talk to Us, Come In”
Recently, the billion-dollar crypto industry snubbed Gary on his suggestion that crypto exchanges now need to register with the SEC, as some of them qualify as securities.
He was inviting them to “come in” and join hands with SEC to better engage, improve services, and “gain public trust”.
He said that unless cryptocurrency platforms — of their titanic level and nature — work within a public policy framework, they’ll not be relevant five to ten years from now.
They declined the offer.
Cryptocurrencies Pose a Challenge to Regulators
Crypto is a gigantic business in the US.
Coinbase, for example, is among the largest New York-based crypto exchanges that recently earned $1.6 billion worth of profits.
However, which financial regulator is ready to oversee their activities? None. Gary is now calling on Congress to exercise authority on crypto exchanges and make it clear.
Crypto is a highly speculative asset traded every day, but 95% of its activities have “sparse” investor protection laws. Because of that, they pose a challenge to regulators.
Financial laws can easily apply to crypto with the existence of traditional brokers. Sadly, crypto investors trade directly with each other — dissolving the need for brokers.
Gary is of the idea that regulators can still exercise authority over cryptocurrency platforms, despite being decentralized.
He argues that cryptocurrency and decentralized finance is an age-old concept. It existed early in the century — it’s only a variation of P2P (peer-to-peer) lending but with technology. So, regulators can still exercise authority over them.
If back then, a “company in the middle” existed between people lending each other, then crypto exchanges need centralization as well — to govern mechanisms, fee models, and incentives.
It’s interesting for Gary to think of crypto trading in such a way, especially knowing that cryptocurrency platforms are just software put on the web.
