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Crypto Platforms Must Be Part of Policy Framework to Survive: SEC Chief

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What You Need to Know

  • Cryptocurrency technology is now essentially a teenager, Gensler said.
  • It will not reach adulthood if it doesn’t come within the public policy framework, the SEC chief explained.
  • The use of stablecoins presents a number of public policy challenges with respect to protecting investors, he added.

Reacting to the President’s Working Group on Financial Markets report on stablecoins issued Monday, SEC Chairman Gary Gensler said Tuesday that the cryptocurrency technology is now essentially a “teenager.” The regulator argued that it “will not reach adulthood if it doesn’t come within the public policy framework.”

In remarks at the Securities Industry and Financial Markets Association’s annual conference, held virtually, Gensler stated that what’s important for the SEC now regarding crypto trading and lending platforms is ensuring that the investing public is protected.

In this new crypto area, Gensler stated, “there’s a lot of hype and investors reaching for yield who are hoping to have a little bit better future; but these platforms generally have not come in to either the CFTC or SEC [oversight] to be within an investor protection framework.”

The SEC, Gensler said, is “going to be very active trying to bring this [crypto] market into what I’ll call the investor protection framework.”

Stablecoin Issues

Stablecoins, as Gensler noted Monday in a statement, are crypto tokens pegged or linked to the value of fiat currencies.  “The existing stablecoin market is worth nearly $130 billion, having grown 20-fold in the last 20 months,” he added.

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“These stablecoins are embedded in crypto trading and lending platforms. Though they represent only about 5% of all crypto assets, in October, more than 75% of trading on all crypto trading platforms occurred between a stablecoin and some other token,” the regulator explained.

As the report notes, “stablecoins, or certain parts of stablecoin arrangements, may be securities, commodities and/or derivatives,” Gensler stated. Thus, he continued, “the use of stablecoins presents a number of public policy challenges with respect to protecting investors.”

Further, the SEC chief noted, “stablecoins may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and other safeguards against illicit activity.”

The report also acknowledges, Gensler continued, that “some stablecoin issuers may seek for these tokens to be used for payments in the future. This, along with the intertwined nature of stablecoins with crypto trading and lending platforms, raises emerging financial stability concerns.”

While Congress and the public evaluate the report, Gensler said the SEC as well as the Commodity Futures Trading Commission, “will deploy the full protections of the federal securities laws and the Commodity Exchange Act to these products and arrangements, where applicable.”