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  • J McGlynn and M Bacina

SEC Chair's negative crypto narrative continues

Updated: May 3

SEC Chair Gary Gensler has recently announced another set of initiatives to expand investor protections in the $2 trillion cryptocurrency market while touting his supposedly separate, yet aggressive, personal stance on crypto markets.

Gensler has doubled down on his criticisms of stablecoins, drawing an inaccurate comparison between stablecoins and poker chips to express the danger he considers is created by stablecoins having a lack of regulation. He believes they should be treated as securities under US law. In this latest speech, Gensler foreshadowed regulation of cryptocurrency platforms, tokens and of course, stablecoins.

Making comparisons between current crypto businesses who advertised at the recent US Superbowl, and other businesses which had advertised at the Superbowl and now no longer exist, Gensler said:

In February, you all might have noticed Super Bowl ads for several crypto platforms. This wasn’t the first time we’d seen some new innovations getting air time on the biggest TV event of the year. Seeing these ads reminded me that, in the lead-up to the financial crisis, subprime lender AmeriQuest advertised in the Super Bowl. It went defunct in 2007. A few years before that, according to Axios, “Fourteen dotcom companies advertised during the 2000 Super Bowl, most of which are now defunct."

Given that the dotcom companies were hemorrhaging cash at the time and booking massive losses, it's hardly a fair comparison to highly profitable and cashflow positive crypto exchanges.

Gensler indicated the SEC has plans to register and regulate crypto platforms much like traditional exchanges.

These crypto platforms play roles similar to those of traditional regulated exchanges. Thus, investors should be protected in the same way

This approach is exactly what exchanges in Australia have been asking to be put in place and which is presently under consideration, to help prevent rogue operators hurting Australian crypto buyers.

Gensler takes matters further, and appears to be believe that every crypto-exchange must be offering securities given the vast range of tokens offered to customers. The SEC has partnered with the Commodity Futures Trading Commission; a partnership Gensler says is designed to address the unique problem presented by platforms trading crypto-based security tokens as well as commodity tokens.

Stablecoins are, in the SEC Chair's view, akin to bank deposits and money market funds, and Gensler is concerned that crypto-to-crypto transactions are used to skirt the traditional banking system, "potentially facilitating platforms and users avoiding or deferring an on-ramp or off-ramp with the fiat banking system". He repeated his sentiments of previous announcement on stablecoins - that they are likely financial products and or used for illicit scams. Stablecoins raise "conflicts of interest and market integrity questions that would benefit from more oversight", he believes.

It is unfortunate that the SEC Chair, who sets a tone for global financial services regulation, continues to push a narrative which is unsupported by evidence. The US has seen a significant "brain drain" of crypto talent, and it is hoped Australia will not suffer a similar problem after our regulatory reforms are complete.


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