Are US Regulators Trying to End Crypto’s Bullrun?
The SEC chairman, Gary Gensler, has shared his most recent views on cryptocurrency during a virtual conference with the Washington Post. Within this discussion, he shared several negative beliefs about the industry, leading many to question what exactly Gensler’s motives are when it comes to cryptocurrencies.
Gensler: Crypto is a Casino
In this recent conference, Gensler spoke strongly about crypto, calling it the “Wild West” in terms of regulations, and focused on the gambling aspect of the industry. In particular, he stated:
“We’ve got a lot of casinos here in the Wild West, and the poker chip is these stablecoins at the casino gaming tables”.
Referring to stablecoins as “poker chips” is an interesting term; traders generally treat these as secure and are generally considered as less speculative than standard cryptocurrencies, such as Bitcoin and Ethereum. It appears Gensler was arguing stablecoins are only as stable as the industry is overall, but this is not the only looming worry people have over these coins.
One issue some investors have with stablecoins is how a number of them have a lack of transparency surrounding what finances they are truly backed by. The brunt of these fears has been caused by Tether’s inability to openly discuss their financial losses. Additionally, some people, such as Coinbase’s CEO, have been examining the stability of these coins, should the US dollar lose its footing on the world stage.
Earlier in the discussion, Gensler also questioned the relationship between stablecoins and investment contracts:
“[T]hese stablecoins may have attributes of investment contracts, have some attributes like banking products, but the banking authorities right now don’t have the full gamut of what they need, and how we work with Congress to sort through that.”
Here, Gensler essentially echoed Secretary Yellen’s argument that stablecoins need to work within a congressional framework. Like Yellen, he believes regulation is the only way this technology can survive.
It is disappointing to hear Gensler speak about crypto in such a negative light, but it is unsurprising. While the SEC chair was once viewed as a cutting-edge and pro-crypto individual due to his past at MIT teaching blockchain and economics, he has proven himself to be deeply wary of the industry as a whole.
Is Gensler Tarnishing Crypto’s Reputation?
Returning to the poker chip comment, Gensler’s use of the analogy is strange considering the SEC’s openness when it comes to gambling. For instance, take a look at the SEC’s gaming regulatory overview – while there are clearly many intricate and prudent rules in place, it is noteworthy how the document opens with a discussion on how gambling can be used to echo public policy and overall favor governments before citizens:
“[Gaming laws can be] designed to protect and maximize state and local revenues derived through taxation and licensing fees imposed on gaming industry participants and enhance economic development and tourism.”
In other words, the SEC sees gambling as a tool for state governments to collect tax revenue, and so the industry is (largely) left to its own devices. If Gensler really wants to make a comparison between the two, then he should give crypto the same breathing room the gambling industry gets. The SEC’s actions certainly seem to be against the spirit of the free market.
With this in mind, it appears Gensler and the SEC are causing deliberate damage to crypto as a response to being unable to directly control it. An example of this would be how the SEC has used threats to keep Coinbase from launching its lending platform. In the interview with The Washington Post, he directly states: “I don’t think that new technologies really long exist outside of public policy frameworks”, but does not explain his reasoning.
Why exactly does an economic system need a governmental framework to exist? Can an industry not function autonomously and with its own agency? At the moment, considering how harsh Gensler’s words on crypto have been, this is seeming more like a self-fulfilling prophecy, rather than a sound critique on the industry itself.
The SEC is Daunted by the World-Stage
If you listen to Gensler’s virtual discussion, a theme begins to emerge. The SEC is losing control, and it is uncomfortable with its conditions. The crypto industry is far too wide-ranging and decentralized across the world for the organization to grasp, and it has arguably triggered an identity crisis.
Within the discussion, the interviewer brings up the fall of Evergrande, and questions what implications it will have for the US. However, Gensler deflects the question and swiftly returns to his concerns over crypto.
When he did eventually tackle the question, he said:
“I do think the reforms after the 2008 crisis stood up a much stronger U.S. financial system. It doesn’t mean that there aren’t issues that we look at, at the SEC and other important regulators like the Federal Reserve and the bank regulators and CFTC, that I once was honored to chair. But I do think that we’re in better position in 2021 to absorb some of those shocks than we were prior to the ’08 crisis, but it doesn’t mean we’re isolated. Our economies are connected around the globe.”
In making this point Gensler ignored a huge caveat – many of those reforms after the 2008 crisis were repealed by the Trump administration in 2018. While the US learned a lot from that time, many of those lessons have been forgotten. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the most significant financial restructuring bill of its time) is now arguably less effective.
Gensler likely knows this and could be nervous about the possible damage incurred to the US over Evergrande. The SEC may also be worrying about the economic harm the Federal Reserve is causing with the mismanagement of its quantitive easing plans. The SEC can do very little to help, as both regulatory bodies deal with different areas, however, the fallout from a failure to handle quantitive easing could cause the stock market to act in unusual ways.
Overall, the SEC appears to be in a position where it cannot sufficiently address the country’s financial quandaries with Gensler’s tenure as chair coming at a highly turbulent time.
Do you think the SEC has treated the crypto industry fairly? Let us know in the comments below.