[2021-09-15] SEC Chief Reiterates Call for Cryptocurrency Regulation

[Woodie]

When Securities and Exchange Commission (SEC) Chairman Gary Gensler took up his current position back in April, the crypto industry expected a change in the federal agency’s stance—which was hostile during his predecessor's tenure—toward cryptocurrencies and digital assets. He has disappointed them.

Not only has Gensler outlined new concerns and called the industry "a Wild West"—he has also used every available opportunity to press his case for bringing the industry under his agency's oversight.1 In his testimony before the Senate Banking Committee on Tuesday, the SEC chief again reiterated those issues and made the case for bringing the recalcitrant industry under his watch.

A Critical Assessment

Most of Gensler's assessments about the state of affairs in the cryptocurrency industry were negative. According to the SEC chief, only a "small number" of cryptocurrencies currently trading in crypto markets are not securities. "Very many are," Gensler said. This includes stablecoins, a type of cryptocurrency whose price is pegged to a fiat currency or a basket of assets to minimize price fluctuations.

When asked for his reasoning to categorize stablecoins as securities, Gensler pointed to the "35 different things" defined as securities in the 1933 Securities Act. While the cryptocurrency industry is fixated on the Howey Test as outlined in a Supreme Court verdict to define securities, the Act actually defines securities in multiple guises including investment contracts, collateral-trust deposit, and certificates of deposit.

Decentralized Finance or DeFi tokens and services have exploded in popularity this year.4 But Gensler said that the services are decentralized in name only and that user agreements for such services mask additional fees and charges that are not obvious to the customer. He said DeFi and crypto tokens are a "highly speculative asset class" and agreed with Senator Elizabeth Warren, Democrat of Massachusetts, that high and unpredictable fees at DeFi services could "make crypto dangerous."

During the hearing, Gensler also took aim at Coinbase, North America's biggest cryptocurrency exchange by trading volume. Coinbase Global, Inc.'s (COIN) CEO Brian Armstrong had accused the SEC last week of "really sketchy behavior" for refusing to divulge their reasons for categorizing tokens in their lending product as securities. He had also said the agency is "creating an unfair market" by threatening to sue crypto exchanges.

Read more https://www.investopedia.com/sec-chief-reiterates-call-for-cryptocurrency-regulation-5201311

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[Betwrong]

Sorry if I'm offending anybody, but this is what I want to say after reading the article:

This guy, Gary Gensler, to tell you the truth, I don't like him much. Repeating same things(which wasn't invented by him even!) over and over again, and at the same time asking for more funding for his agency? What a f*ckhead!

[Nathrixxx]

Pls I will advise you to always put in place your own personal thoughts and ideas, suggestions and clew towards any post you made, it's quite a nice topic but your own participation isn't included which renders it as just copy and paste post, though you did not plagiarize but the post will be accounted under low quality post, pls take note I was once a victim.

[DooMAD]

They're good at calling for regulation.  But they're bad at getting it done.   

I just don't see how they can keep up.  By the time they find the tip of the iceberg and formulate a plan on how to deal with that, they'll have another 1000 icebergs to contend with.  This environment evolves too fast.

[bbc.reporter]

@DooMAD. That should be very concerning for all of the users of the cryptospace because we do not know what laws those people might create. We have seen some proposals to KYC wallets and for users to personally collect information about the sender and sender’s source of funds. There is also a proposal that trading in  exchanges should not be allowed if you do not have the proper licenses. They want everyone to trade through someone similar to a professional stockbroker which puts an intermediary between you and the market.

[UKprod]

It is one thing to regulate cryptocurrencies and another to create a witch-hunt of those using cryptocurrencies. Regulation of cryptocurrencies is welcomed by most in the community, whereas the latter part is what scares the most too. And as Coinbase's CEO said, the SEC seems to be showing sketchy behavior and this is what make me skeptic about them.

[DooMAD]

@DooMAD. That should be very concerning for all of the users of the cryptospace because we do not know what laws those people might create. We have seen some proposals to KYC wallets and for users to personally collect information about the sender and sender’s source of funds. There is also a proposal that trading in  exchanges should not be allowed if you do not have the proper licenses. They want everyone to trade through someone similar to a professional stockbroker which puts an intermediary between you and the market.

They say "necessity is the mother of invention".  Part of me hopes there will come a day where centralised exchanges are no longer a viable option and that everyone trades peer-to-peer via decent, stable software which they run themselves.  Exchanges in their current guise are a relic of the past.  The wrong way to do things.  They need to die in order for something better to take their place.  So yeah, it's a good thing if at some point regulators do act on that.  In a way, they'd be doing us a favour, because they would be clamping down on middlemen and encouraging people to find more resilient and independent methods to trade.  That's the direction we should ideally want to be moving in.

And I can't say I'm too worried about the ludicrous talk of KYC within in the software itself.  If the copyright regulators with all their vast wealth and influence still haven't managed to add that kind of tracking nonsense to BitTorrent et al, then the SEC definitely won't find a way to do it with BTC wallets either.  I suspect this is the reason why they haven't gone ahead and implemented anything yet.  They don't know where to begin because many of their ideas are completely unfeasible.  So all they do is talk about their wishlist as though their dreams will magically come true. 

[sikke]

Well, what else do you expect from the person who is literally responsible for overseeing regulations?

They want to get as many people under their wing as possible when it comes to regulations. That's just their impetus.

I don't agree that we need more regulation, but better community awareness about how to conduct best practices on exchanges (don't leave your coins on exchanges, etc.). We have had many non-regulated entities pull through far better than regulated exchanges.

[bbc.reporter]

@DooMAD. That should be very concerning for all of the users of the cryptospace because we do not know what laws those people might create. We have seen some proposals to KYC wallets and for users to personally collect information about the sender and sender’s source of funds. There is also a proposal that trading in  exchanges should not be allowed if you do not have the proper licenses. They want everyone to trade through someone similar to a professional stockbroker which puts an intermediary between you and the market.

They say "necessity is the mother of invention".  Part of me hopes there will come a day where centralised exchanges are no longer a viable option and that everyone trades peer-to-peer via decent, stable software which they run themselves.  Exchanges in their current guise are a relic of the past.  The wrong way to do things.  They need to die in order for something better to take their place.  So yeah, it's a good thing if at some point regulators do act on that.  In a way, they'd be doing us a favour, because they would be clamping down on middlemen and encouraging people to find more resilient and independent methods to trade.  That's the direction we should ideally want to be moving in.

And I can't say I'm too worried about the ludicrous talk of KYC within in the software itself.  If the copyright regulators with all their vast wealth and influence still haven't managed to add that kind of tracking nonsense to BitTorrent et al, then the SEC definitely won't find a way to do it with BTC wallets either.  I suspect this is the reason why they haven't gone ahead and implemented anything yet.  They don't know where to begin because many of their ideas are completely unfeasible.  So all they do is talk about their wishlist as though their dreams will magically come true.  

However, was it not the cryptospace this necessity? Why is there much people in the community who support regulation? Is this because this is what they speculate that might cause the next pump? This is clearly very foolish.

The KYC will not be in the software itself. The user will be required to report all questions about all the transactions connected to his wallet. I reckon  American users might begin to see the real definition of hodl hehehehe.

[DooMAD]

Why is there much people in the community who support regulation? Is this because this is what they speculate that might cause the next pump? This is clearly very foolish.

I just see centralised exchanges as the weak link in the chain.  Custodial banking is essentially a bad habit which we need to unlearn.  Custodial exchanges are just a continuation of that bad habit.  So, if regulation is going to exist somewhere (and it's naive to believe you can simply wish it out of existence),  then I'd rather see it focused on the custodian middlemen where it belongs.  It's a pragmatic approach.  

[cafucafucafu]

Hell, if they weren't hostile to exchanges they wouldn't be called the SEC.

Just let it go, I think that this has been said so many times now that it carries virtually no weight.

The SEC is going to keep scrutinizing transactions and deals, that's their job. The decentralized cryptosphere will live on regardless.

[Sithara007]

I just see centralised exchanges as the weak link in the chain.  Custodial banking is essentially a bad habit which we need to unlearn.  Custodial exchanges are just a continuation of that bad habit.  So, if regulation is going to exist somewhere (and it's naive to believe you can simply wish it out of existence),  then I'd rather see it focused on the custodian middlemen where it belongs.  It's a pragmatic approach.  

Cryptocurrency exchanges are always evolving and innovating. And within a few years, a large share of the volumes from custodial exchanges will probably move to decentralized exchanges. Right now the users don't feel a need to do so, because Cex platforms are easier to operate and for low-volume users, the KYC requirements and other formalities are minimal. But once this situation changes, we will see a faster shift from Cex to Dex. But that said, I don't think that the authorities will be too happy with the Dex platforms growing in userbase and volumes. It's like a never ending cycle.

[bbc.reporter]

Why is there much people in the community who support regulation? Is this because this is what they speculate that might cause the next pump? This is clearly very foolish.

I just see centralised exchanges as the weak link in the chain.  Custodial banking is essentially a bad habit which we need to unlearn.  Custodial exchanges are just a continuation of that bad habit.  So, if regulation is going to exist somewhere (and it's naive to believe you can simply wish it out of existence),  then I'd rather see it focused on the custodian middlemen where it belongs.  It's a pragmatic approach.  

However, this is the problem. There is misconception that regulations will only be regulations without disrupting the crypto infrastructure. Regulations would begin to declare many tokens and coins as securities and this would require registrations, licenses and to follow decades of old regulations under the SEC.

What would happen to the cryptospace under these decades old regulations? Under these regulations, the SEC would require professional brokers to buy and sell for clients, custodians and reports for transparency. Every advantage of the cryptospace reduced to nothing because the community wanted regulations.

[DooMAD]

I just see centralised exchanges as the weak link in the chain.  Custodial banking is essentially a bad habit which we need to unlearn.  Custodial exchanges are just a continuation of that bad habit.  So, if regulation is going to exist somewhere (and it's naive to believe you can simply wish it out of existence),  then I'd rather see it focused on the custodian middlemen where it belongs.  It's a pragmatic approach.  

However, this is the problem. There is misconception that regulations will only be regulations without disrupting the crypto infrastructure. Regulations would begin to declare many tokens and coins as securities and this would require registrations, licenses and to follow decades of old regulations under the SEC.

What would happen to the cryptospace under these decades old regulations? Under these regulations, the SEC would require professional brokers to buy and sell for clients, custodians and reports for transparency. Every advantage of the cryptospace reduced to nothing because the community wanted regulations.

Perhaps I sound unsympathetic, but I don't believe in coddling every last token as though it somehow deserves a chance to exist.  And very few of them do offer genuine advantages in terms of actual usage anyway.  It's survival of the fittest.  Evolve or die.  If a given token is so weak that can't withstand the feeble efforts of a national agency desperately attempting to police an international world (when they have absolutely no power to do so), then frankly it deserves what it gets.

And again, it's not a case of "wanting" regulations.  But there's no way to make the SEC vanish.  They believe they have a job to do and none of us can change that.  So if they have to regulate something, it may as well be the exchanges and the pump'n'dump shitcoins which have no real world usage and are absolutely the definition of a security.  They're total garbage.  Who honestly cares if they take a hit?  Other than the people making them, I mean.

I'm fairly confident that if people are realising actual benefits from using a legitimate coin/network/whatever, then it's likely strong enough to survive any legal or regulatory challenges it might face.  Much like filesharing and copyright infringement, everyone does it anyway.  The authorities can only make an example of a careless few.  If it's useful, people will work on improving the technology to make it more robust and harder to shut down.  The weak are weeded out and the strong flourish.  Life goes on.  I don't see how it can work any other way.  Unless you're somehow in a position to disband the SEC and other such entities, this is how it is.

[bbc.reporter]

@DooMAD. I am not quite sure if you understand what is happening because all the advantages of crypto by removing the middlemen and the custodians are being proposed to be removed. I would need a professional broker to buy and sell? I would need a government approved wallet provider to store my coins? I reckon under that system, why crypto? We would be giving up control and would need their permission once again.

[DooMAD]

@DooMAD. I am not quite sure if you understand what is happening because all the advantages of crypto by removing the middlemen and the custodians are being proposed to be removed. I would need a professional broker to buy and sell? I would need a government approved wallet provider to store my coins? I reckon under that system, why crypto? We would be giving up control and would need their permission once again.

Perhaps I'm just a purist.  We seem to have different ideas about what crypto is.  In my mind, handing your funds over to a custodian is not crypto.  You are already giving up control.  The only "advantage" you gain is convenience.  But you have sacrificed control to obtain it.  I don't get how people can't see this.  It's baffling.  Do I really need to quote the introduction to the Bitcoin whitepaper?

1. Introduction
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable.

This is precisely what always happens with third parties.  It's inevitable.  You can't avoid it.  Exchanges do have added costs.  They don't permit you to make trades for tiny amounts.  Many of them can adjust your balance as they see fit, effectively reversing any trades you've made.  And now there's going to be more of your personal information for them to store and eventually lose to identity thieves.  As such, there is no defending any so-called "crypto" platform that operates on a custodial basis.  As I choose to interpret the definition, they're not a true crypto platform.  They are an optional service.

Exchanges are basically casinos.  You give them actual money.  They give you chips.  IOUs which represent money.  You play with the IOUs.  Then, when you're finished, you ask their permission to have some actual money back based on the value of your IOUs.  None of this is necessary.  Crypto works just fine without it.  Again, it's just a bad habit we haven't learned to break yet.  You can buy and sell without exchanges.  I've done it.  This was designed to be done peer-to-peer.  That was the whole point.  And by the sounds of it, that will soon be the more convenient option.  Middlemen are, and always will be, on numbered days until some authority or another paints a target on them.

And the "government approved wallet provider" part is just silly.  Open source wallet software, which you can verify is KYC/AML/Spyware/Government free, will always be available.  Governments can certainly attempt to restrict access to software they don't approve of, but they don't have a very successful track record with that.

I'm all for people contacting their representatives to try and push that amendment to the proposed legislation where developers, miners and anyone running a node aren't lumped into the same category as custodians (https://bitcointalk.org/index.php?topic=5356305.0).  That would be a step too far.  Don't get me wrong, that part is a genuine concern.  The line needs to be drawn there, IMO.

[bbc.reporter]

@DooMAD. Agreed! This was why I was arguing against regulations in another thread, and similar to you, I am very confused why many users in this forum support decades old regulations to be implemented in the cryptospace. Is this a misunderstanding or a lack of research? An assumption that everything would pump again?