SEC Chair Gary Gensler has released an "educational" video on digital currency exchanges once again touting the "obvious" need to have them registered and regulated in line with traditional security exchanges. The video forms part of a recently launched video series, Office Hours with Gary Gensler, where the well known (former) blockchain teacher but now crypto critic breaks down various subjects including cryptocurrencies, and digital engagement practices.
Comparing the US stock market to the crypto exchanges, the SEC chair uses the platform to repeat his longstanding view that crypto market participants can or should comply with the federal securities laws, saying:
Crypto platforms, like stock markets, bring together buyers and sellers crypto platforms have millions sometimes tens of millions of retail customers directly buying and selling on the platform without going through a broker.
He continues:
With so many retail customers trading on crypto platforms we should make sure that those platforms offer similar protections so I've asked our staff to work directly with the platforms to get them registered and regulated to ensure that those crypto tokens come in as well and register where appropriate as a securities.
As it is not uncommon for the SEC to make comments in the build up to their upcoming moves, leaving market participants to try and interpret what is meant, this video clearly hints at the SEC's future plans to bring further regulation around crypto exchanges and token issuers.
Gensler highlights that many crypto trading platforms are market makers, highlighting that there is no reason to treat the crypto market differently "just because a different technology is used". This is of course entirely sensible when dealing with CeFi digital exchanges, and Australia has an ongoing consultation for a CASSPr licence regime to deal with the real risk areas which centralised exchanges pose.
Things are a bit more complicated when it comes to crypto tokens and issuers of tokens, and two burning questions remain to be addressed by regulators:
how projects can understand when it is 'appropriate' to approach the SEC or their home regulator to obtain clear guidance on how they can comply; and
how those projects can comply with the existing regulatory regime, which is not designed for a decentralised world.
Making these 'square pegs' fit into 'round holes' has been a challenging issue facing regulators and legislators around the world, including in Australia. The devil is always in the detail, and unfortunately details are yet to emerge which will help blockchain and crypto companies find more comfort in compliance.