Securities and Exchange Commission Chair Gary Gensler doesn’t view decentralization as a fact of crypto markets, despite the origins of digital currencies in circumventing centralized authorities.
“There’s a tendency for central intermediaries to benefit from scale, network effects, and access to valuable data. Though technological innovations repeatedly disrupt incumbent business models, centralization still tends to reemerge,” Gensler said in remarks prepared for a virtual appearance at the Securities Industry and Financial Markets Association’s annual meeting in New York City.
“We’ve even seen centralization in the crypto market, which was founded on the idea of decentralization," Gensler warned. "This field actually has significant concentration among intermediaries in the middle of the market.”
Added the SEC chair: “Thus, we must remain vigilant to areas where concentration and potential economic rents have built up, or may do so in the future.”
Gensler suggested in a question and answer session during his virtual appearance that most, if not all, crypto exchanges violate securities law by listing unregistered securities.
“As it relates to the intermediaries, the so-called crypto exchanges or lending platforms and the like, they’re highly centralized," said the SEC chair. "They tend to have hundreds of tokens. It’s sort of beyond probabilities that there’s some securities tokens on them.”
Gensler asked exchanges to come in and ask the securities regulator if they are unclear as to whether a cryptocurrency or token could be viewed as a security, and said the SEC could work on a case-by-case basis as to whether or not an exemption is needed to be made for a particular project.
Though the SEC chair is part of the super committee of regulators that asked Congress for legislation on stablecoins and other digital asset areas, he cautioned against lawmakers creating a new definition or structure around cryptocurrencies that “undermines the competitiveness of our equity markets or fixed income markets that are regulated,” by changing definitions around brokers or exchanges to accommodate the new financial asset class.
“If you’re raising money from the public and you call it crypto, but you’re raising money from the public and they’re anticipating profit, then register and have the full fair and truthful disclosure," added Gensler.
Much of the digital asset industry has chafed at Gensler’s stance toward cryptocurrencies during his tenure as leader of the securities regulator, and he and Commodity Futures Trading Commission Chair Rostin Behnam have not always appeared to be on the same page. Though the two appear to be in agreement on an expanded role for the CFTC in regulating markets for digital commodities like bitcoin, they may not agree on what cryptocurrencies fall under that definition.
Without addressing crypto in particular, Gensler emphasized the importance of treating market participants alike, to focus “competition on price, service, and other key factors,” rather than market manipulation or “whether the game is fair.”
Updates with additional Gensler comments.
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