U.S. Securities and Exchange Commission Chairman on Tuesday defended the tough stance he and other regulators have taken on cryptocurrencies, arguing that there is a lot of “hype” in the markets for digital assets, and that investors in these markets lack the protection they enjoy in markets for stocks and bonds.
Gensler was speaking during an interview at the The Securities Industry and Financial Markets Association annual meeting Tuesday.
“There are a lot of investors reaching for yield…but these platforms right now, generally have not come into either the Commodity Futures Trading Commission or the SEC to be within an investor protection framework,” Gensler said. “And without that, you don’t have the market integrity, you don’t have the efficiency in competition or, frankly, resiliency.”
Gensler discussed the recommendations outlined by the President’s Working Group on Financial Markets for regulating stablecoins issued Monday, which suggested that Congress pass legislation that would require stablecoin issuers to be insured and regulated like banks.
Even absent new laws, however, Gensler said his agency would “be very active in trying to bring this market into what I’d call the investor protection framework.” The SEC Chairman has previously declined to rule out that his agency would seek to regulate stablecoins, telling the Senate Banking Committee in September that a stablecoin could be a security and therefore under its jurisdiction.
Stablecoins, like dai
DAIUSD,
tether
USDTUSD,
and USD coin
USDCUSD,
are a kind of digital asset that pegs its value to the U.S. dollar and have become widely used to facilitate trading in popular cryptocurrencies like bitcoin
BTCUSD,
and ether
ETHUSD,
Their stable value makes them an attractive instrument for cryptocurrency investors to store uninvested funds.
Gensler also defended a recent decision by the Basel Committee on Banking Supervision, a consortium of global banking regulators to propose that banks must set aside enough capital to fully cover any losses in bitcoin or other cryptocurrency holdings, despite the fact that these rules could discourage regulated banks from entering the market for cryptocurrencies and bring with them greater regulatory oversight of markets for digital assets.
“At best, it’s like seed investing in venture capital,” Gensler said. “It’s very early and many [cryptocurrencies] have failed.” He predicted a large number of extant digital assets would not be successful in the long run as competitors against government-issued currency or precious metals.
The regulator urged crypto entrepreneurs to work with the SEC to figure out how they can work within the existing framework for investor protection and to “actually think about the full protections that our investor protection and consumer protection and banking laws have,” rather than attempt to quickly get a stamp of approval.
“That’s the challenge because, frankly there’s a lot of flaks that are trying to stay outside this public policy framework,” Gensler said. “They’re trying to arbitrage public policy and also to some extent, arbitrage [traditional financial services companies.] It’s also about level playing fields.”