SEC Chairman says crypto assets need lot more regulation

Gary Gensler said many digital tokens, because they are investment contracts, are offered and sold as securities and should be regulated as such

The head of US Securities and Exchange Commission (SEC) says crypto assets need a lot more regulation before they can move forward.

This asset class is rife with fraud, scams, and abuse in certain applications, SEC Chairman Gary Gensler said at the Aspen Security Forum on Tuesday. We need additional congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks.

Gensler addressed several aspects of the crypto business in his speech.

Gensler said many digital tokens, because they are investment contracts, are offered and sold as securities and should be regulated as such. I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight, he said.

This leaves prices open to manipulation. This leaves investors vulnerable. He said he has urged staff to continue to protect investors in the case of unregistered sales of securities.

Noting that a typical trading platform has more than 50 tokens on it, Gensler said the platforms have significant gaps in investor protection. The issue is whether any of those tokens are securities that would come under the purview of the SEC. To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they meet an exemption, he said.

Gensler noted that trading crypto-to-crypto was typically done using stablecoins, which are crypto tokens pegged or linked to the value of fiat currencies. Gensler is concerned these stablecoins may be used as part of a broader effort to sidestep anti-money laundering and tax compliance laws, and also affect national security. Gensler said these stablecoins may also be securities and investment companies and if so, should come under the purview of the SEC.

Several companies have sought the SEC’s approval for a bitcoin ETF, and all have been denied. Gensler noted, however, that several vehicles already invest in bitcoin, such as the closed-end Grayscale Bitcoin Trust and mutual funds that invest in bitcoin futures. Gensler said he anticipates companies will file for ETFs under the existing 1940 Investment Company Act, which regulates mutual funds and closed-end funds, and which provides significant investor protections.

Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded bitcoin futures, he said.

Gensler did not comment on the many bitcoin ETF applications that do not own bitcoin futures but instead seek to own bitcoin directly.