A group of investor advocates wrote a letter to Gary Gensler, chair of the Securities and Exchange Commission (SEC), requesting him to tighten the noose on the booming cryptocurrency industry.
The investor advocates are fearful that many cryptocurrency projects are violating investor protection rules. For that reason, they deserve more urgent SEC scrutiny.
The Consumer Federation of America and Americans for Financial Reform Education Fund are among the group of investor advocates that signed the letter on Monday. They particularly want SEC to increase attention on cryptocurrency lending exchanges and Stablecoins (such as Tether and its peers).
In part, the letter said that the commission should offer urgent regulatory guidance on the digital asset marketplace, which has now “been born and grown into a Wild West”.
SEC push for a crypto market clampdown
The letter also requested US financial regulators to collaborate with the commission to enforce the regulatory laws to better “improve the integrity and stability of the digital asset markets”.
The letter couldn’t come at a better time. Last week, SEC and other regulators pushed for a cryptocurrency market clampdown.
The crypto industry has, in the past few years, morphed from a little-known technology into a gigantic industry bursting from the seams with trillions of dollars — supporters even predicting the industry can topple traditional banking.
So far, SEC has issued threats to sue Coinbase if they dare launch the crypto lending product, Lend. Fortunately for Coinbase, they quietly abandoned those plans on Friday.
Treasury’s Stablecoins scrutiny
The US Treasury Department in conjunction with other agencies is now reviewing Stablecoins — and has set recommendations for new oversight laws. Compared to ever-fluctuating Bitcoin prices, Stablecoins prices are often pegged at a fixed $1.
To make profits and achieve governments backing, Stablecoins providers hold reserves in the form of corporate bonds, commercial paper, and cash.
In the letter, the group of investor advocates said such reserves are vulnerable to market stress over time. They even compared Stablecoin reserves to money market funds. “Both [products] pose a significant risk to investors and consumers”.
Tether and USD Coin are the two largest Stablecoins in the world that the advocacy group wants SEC and regulators to look into.
Although regulations are necessary, some lawmakers suggest Congress and regulators need to define crypto rules and laws owing that this is a new technology.
However, the advocacy groups’ letter calls for SEC to “vigorously enforce” investor protections. And create laws that properly govern the cryptocurrency marketplace.
