The crypto collapse has increased calls for regulation as SEC Chairman Gary Gensler calls for ‘one rule book’ to protect all trading.
The calendar may say it’s summer in the Northern Hemisphere, but it’s winter in crypto world.
The rapid collapse of the cryptocurrency market has left many investors stunned, while boosting calls for regulation.
Gary Gensler, chairman of the Securities and Exchange Commission, shared some of his thoughts about cryptocurrency with CNBC’s Jim Cramer during an interview on Squawk on the Street.
‘Key Attributes of a Security’
“Many of these financial assets, crypto assets, have the key attributes of a security… some like bitcoin, and that’s the only one, Jim, I’m going to say because I’m not going to talk about any of these tokens, my predecessors and others have said they’re a commodity,” Gensler said.
He added that “there’s a lot of work to be done to really protect the investing public and many of these tokens right now or trying to operate there there potentially non-compliant and I’ll leave it at that.”
Gensler recently told the Financial Times that he wanted “one rule book on the exchange that protects all trading regardless of the pair—[be it] a security token versus security token, security token versus commodity token, commodity token versus commodity token” to protect investors against fraud, front-running, manipulation as well as transparency.
David Lesperance, managing partner of immigration and tax adviser at Lesperance & Associates, said the “one rule book” idea is aimed at preventing any slipping through the regulatory cracks as the SEC and the Commodity Futures Trading Commission (CFTC) regulate the crypto environment.
‘Legislative Turf War’
Lesperance noted that the CFTC is picking up political momentum to regulate crypto markets directly under a bipartisan bill called the Responsible Financial Innovation Act, sponsored by Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.)
Among other things, the bill would shift authority to the CFTC, which would ensure that cryptocurrencies are treated as commodities instead of securities.
The crypto industry would need to finance the CFTC to regulate the industry and take on a myriad of new responsibilities related to virtual assets.
“The legislative turf war is on and given the controversy swirling around the crypto world relating to stable coins, DeFi, and NFT, there is little doubt that a winner will soon be declared,” Lesperance said.
The one rule book idea was not well-received on social media.
“oh now he wants to talk regulation when they’re forcing his hand!! what’s wrong GG??” one person tweeted. “you can’t put it off any longer and suppress the price of bitcoin?? i applaud senators gillibrand and lummis for finally getting the ball rolling!”
Classified as Commodities
“Ramming cryptocurrencies into regulatory regime built for fiat currencies hurts investors — everything we know about money has changed due to the crypto revolution — time to think about new ideas like ending income taxes, the Fed, and many other legacy banking rules,” another commenter said.
Frank Corva, Finder’s senior analyst for crypto and blockchain, said that Gensler’s desire for one rulebook for digital assets isn’t realistic.
“He’s already shared that he feels digital assets like bitcoin and ether should be classified as commodities,” he said. “Given that BTC and ETH make up over 55% of the entire market cap of crypto, this would mean that the CFTC should be the agency to handle regulation chores.”
However, Corva said not all digital assets serve the same purpose as bitcoin and ether and,”therefore, not all digital assets should be regulated like these two assets.”
“It seems that no matter which agencies end up regulating which crypto tokens, Gensler wants a say in how oversight is handled,” he said. “It’s unrealistic to think, though, that there should be one rulebook to oversee these different types of digital assets.”
SEC Must Take The First Step
Amy Lynch, a former SEC regulator and president of FrontLine Compliance, said there are no current proposed rules on the SEC’s Spring regulatory agenda that speak specifically to cryptocurrencies.
“However, it may not be the SEC that takes the first step in regulating this market,” she said. “Treasury has taken the lead on this from a regulatory perspective, and it may end up being Treasury that comes out with regulation for stablecoins before there is any further specific regulation on other cryptocurrencies. or, it may work the opposite direction.”
In any case, Lynch added, the SEC and Treasury, as well as the CFTC, the National Futures Association, and the Financial Industry Regulatory Authority “must all work together on regulating the crypto markets which is what makes it difficult from a regulatory standpoint.”
Lynch said that the regulation issue keeps getting pushed primarily via SEC filings by crypto exchanges and ETFs.
She added that several spot ETFs have been filed for registration, but none have been approved so far due to the lack of regulation of the underlying crypto asset.
“The industry will keep pushing until the SEC acts,” Lynch said. “The crypto markets want regulation to level the playing field and add legitimacy to the market.”
