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Just days after suing two of the largest crypto exchanges in the world, SEC chief Gary Gensler was scathing in his criticism of crypto firms, saying that most crypto tokens are subject to U.S. securities laws and crypto platforms need to comply.
Key Takeaways
- SEC Chair Gensler said that crypto needs to follow the “law of the land.”
- Gensler added that some exchanges likely took calculated risks.
- The comments followed lawsuits against Binance and Coinbase this week.
Crypto Is an Investment Contract
Speaking at the Piper Sandler Global Exchange & FinTech Conference on Thursday, Gensler reiterated his belief that cryptocurrencies are investment contracts as they meet the definition under the Howey Test. And the digital nature of cryptocurrencies does not change the way they should be regulated.
“These tokens have teams promoting them…they are not growing out of the ground like corn or wheat,” Gensler said. “Satoshi Nakamoto’s innovation spurred the development of crypto assets and the underlying blockchain ledger technology. Regardless, however, of the ledger being used, be it a spreadsheet, a database, or blockchain technology, when investors put their money at risk, it’s the economic realities of the investment that matter,” he added.
And therefore, according to Gensler, issuers of crypto-tokens need to register with the SEC.
“Registration is not just a process issue. Failure to register isn’t just a foot fault in a tennis game. It’s core to providing the investing public and our markets with basic protections,” he said.
Staking As A Service Is A Security
Chair Gensler then focused on staking-as-a-service, where he said the pooling of resources to earn a yield made them “classic securities,” but that companies such as Binance failed to register the sale of the service.
Gensler said that the firm and other exchanges such as Coinbase (COIN) and Bittrex knew the rules but likely made a “calculated economic decision” to operate with the threat of later enforcement action by regulators. He said the crypto industry was “rife with fraud, abuse, and non-compliance,” and that industry insiders knew how to register with the SEC. Commingling of funds was another area of the crypto sector that drew scorn from Gensler.
On Monday, the SEC announced a lawsuit against crypto exchange Binance, accusing the firm of violating U.S. securities laws. That was followed 24 hours later by a lawsuit against Coinbase, accusing the firm of operating an illegal exchange.
Gensler noted in Thursday’s conference that the Coinbase Wallet had 16,000 tokens, but a lack of regulation in these cryptocurrency firms meant that retail investors were left “standing in line” at the bankruptcy courts when the projects failed.
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