What Precisely Does Elizabeth Warren Need the SEC to Do About Crypto Exchanges?

In short

  • Senator Warren despatched a letter to SEC Chair Gary Gensler.
  • She desires to know what authority the company has to manage cryptocurrency exchanges.

US Senator Elizabeth Warren (D-MA) has lengthy championed shopper protections. Now, she’s persevering with her pursuit to guard cryptocurrency traders. 

Calling cryptocurrency a “extremely opaque and unstable market” in a letter to Securities and Trade Fee (SEC) Chairman Gary Gensler yesterday, Sen. Warren requested the company reply by July 28 with particulars of the SEC’s regulatory authority over cryptocurrency exchanges and their customers.

Whereas it could be straightforward for cryptocurrency proponents to color Warren as a villain given her earlier statements that it is a “fourth-rate various to actual foreign money,” her letter in the end hits upon a number of points that even fear a few of these inside the trade. 

Sen. Warren, who chairs the Senate Banking Committee’s Subcommittee on Financial Coverage, mentions 4 points that she sees as threat elements to customers. 

First, she says, cryptocurrency exchanges aren’t regulated like inventory exchanges, “despite the fact that they share many options of conventional securities exchanges.” 

Second, she factors to Gensler’s personal admission in Might that neither the SEC nor the Commodity Futures Buying and selling Fee (CFTC) has a regulatory framework in place. Consequently, state cash transmission legal guidelines do the heavy lifting. In accordance with Warren, “These rules weren’t initially designed to offer oversight for classy, exchange-like operations and are inadequate to make sure a protected cryptocurrency market.” They’re additionally cumbersome for crypto corporations, which should juggle 50 completely different units of guidelines.

Third, Sen. Warren means that it is common follow inside the trade to pretend buying and selling volumes. She cites a Might 2019 report from crypto index fund supervisor Bitwise Asset Administration to the SEC suggesting that 95% of CoinMarketCap’s Bitcoin buying and selling quantity was “pretend and/or non-economic in nature.” She believes this quantities to market manipulation, pulling merchants and their cash into investments that is probably not as engaging as they appear.

Lastly, she provides a maybe unintentional shout-out to decentralized exchanges, noting that centralized exchanges akin to Coinbase do not document particular person transactions on a blockchain however can pool merchants’ cash collectively. With entry to particular person customers’ funds, “they will additionally interact in practices like proprietary buying and selling and wash buying and selling to benefit from their clients with out enough disclosures.” (Wash buying and selling is a approach to pump up buying and selling quantity figures and manipulate the market.) Say it collectively now: Not your keys, not your crypto.

Citing a February 2021 report from the Federal Commerce Fee, Sen. Warren says that just about 7,000 individuals misplaced a cumulative $80 million from cryptocurrency scams from October 2020 to March 2021 alone—although these aren’t essentially from cash and tokens buying and selling on Coinbase and bigger centralized exchanges. And Warren mentions her personal considerations with decentralized finance (DeFI), the offshoot of blockchain-based protocols that permit for monetary devices with out conventional monetary middlemen. 

To get readability on the SEC’s method to cryptocurrency, she’s asking the SEC to reply a number of questions, together with how a lot authority the SEC has to manage crypto exchanges and whether or not decentralized exchanges fall into their very own class.

Furthermore, she desires to know whether or not the belongings on crypto exchanges differ from belongings on conventional securities exchanges and subsequently require further rules. She additionally asks whether or not cryptocurrency exchanges are working pretty and if the SEC has recognized any issues. Crypto merchants would possibly suppose that Coinbase‘s and Binance’s penchant for going offline throughout excessive worth drops may represent an issue. 

Lastly, Warren asks, does the US have to coordinate with worldwide actors to manage international exchanges akin to Binance? 

 If anybody can reply these questions, it is Gary Gensler. The SEC chair, who as soon as taught an MIT course on blockchain know-how, has equally referred to as for oversight of cryptocurrency exchanges, whereas mentioning that a few of it could fall exterior of the SEC’s jurisdiction. In any case, the company would not consider Bitcoin and Ethereum—the 2 hottest crypto belongings on exchanges—to be securities. According to Warren, he additionally sees the SEC’s essential position as one in every of shopper safety.

Whatever the pointedness of the questions, given the unclear nature of cryptocurrency’s regulatory standing within the US, they’re properly value answering.

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