US Securities and Exchange Commission (SEC) Chairman Gary Gensler defended the tough stance he and other regulators have taken on cryptocurrencies. He said there is a lot of hype in digital asset markets, and investors lack the protection they use in the stock and bond markets.
"There are a lot of investors reaching for yield...but these platforms right now, generally have not come into either the Commodity Futures Trading Commission or the SEC to be within an investor protection framework," Gensler said. "And without that, you don't have the market integrity, you don't have the efficiency in competition or, frankly, resiliency."
Gensler also discussed the recommendations set out by the President's Working Group on Financial Markets on stablecoin regulation, which proposed that Congress pass legislation requiring stablecoin issuers to be insured and regulated like banks.
But even if the law is not passed, Gensler said the SEC will be very active in introducing the market into an "investor protection system." He previously declined to rule out that his agency would seek to regulate stablecoins, telling the Senate Banking Committee in September that a stablecoin could be a security and therefore is under his jurisdiction.
Stablecoins such as Dai, Tether, and USD Coin are a kind of digital asset pegged to the US dollar. It has come to be widely used to facilitate the trading of popular cryptocurrencies like Bitcoin and Ether.
Gensler also defended the recent decision of the Basel Committee on Banking Supervision to propose that banks must set aside enough capital to fully cover any losses in bitcoin or other cryptocurrency holdings, despite the fact that these rules could discourage regulated banks from entering the market for cryptocurrencies and bring with them greater regulatory oversight of markets for digital assets.
"At best, it's like seed investing in venture capital," Gensler said. "It's very early and many [cryptocurrencies] have failed." He predicted a large number of extant digital assets would not be successful in the long run as competitors against government-issued currency or precious metals.
Gensler called on crypto entrepreneurs to work with the SEC to figure out how they can work under the current investor protection system and "really think about the full protection that our investor protection and consumer protection and banking laws have" instead of trying to get the seal of approval quickly.
"That's the challenge because, frankly there's a lot of flaks that are trying to stay outside this public policy framework. "They're trying to arbitrage public policy and also to some extent, arbitrage [traditional financial services companies.] It's also about level playing fields."