Gary Gensler, President of the SEC, compares cryptocurrency exchanges to casinos
Is the cryptocurrency sector a wild west? For Gary Gensler, President of the Securities and Exchange Commission (SEC), there is no doubt. In fact, he compares companies in the sector to “casinos”. But for what reasons? We explain everything.
Exchanges in the sights of the SEC
During a recent intervention, the President of the Securities and Exchange Commission (SEC), Gary Gensler, revealed his annoyance at cryptocurrency exchanges that are escaping regulation. The head of the US institution even compared the cryptocurrency sector to a “wild west” without legal framework:
“The casinos of this wild west are non-compliant intermediaries [cryptocurrency exchanges].”
Between lack of transparency, tokens issued without legal framework and criminal activities linked to FTX, the SEC is getting frustrated and is calling for more regulation. The US institution is not the only one to want new rules: for states around the world, the bankruptcy of FTX has been the trigger that prompted them to review their legal frameworks.
Moreover, let us recall that the SEC accuses Sam Bankman-Fried, founder and former CEO of FTX, as well as his two associates Caroline Ellison and Gary Wang, of precisely lacking transparency by embezzling the funds of their clients while hiding their financial statements from their partners.
Doubtful transparency of exchanges?
After the debacle caused by FTX, many investors doubted the liquidity available on cryptocurrency exchanges. In response, the platforms provided proof of reserve, a system that allows you to prove the presence of a user’s assets on a given platform.
However, for Gary Gensler, this method is far from sufficient to trust these companies. He points out in particular the lack of transparency of the platforms with regard to their financial situation, as well as the complete absence of separation of funds between the different clients of the same firm.
“Proof of reserve is not a complete accounting of a company’s assets and liabilities, and does not allow the separation of funds between different clients under securities laws.”
Moreover, since the tokens created by the platforms are partially integrated into their treasuries, a legal framework must be created to adapt to their different uses. However, for the President of the SEC, most of these tokens are similar to financial securities and must therefore follow the resulting legislation.
This intervention by Gary Gensler seems quite strange when we consider the troubled relationship that Sam Bankman-Fried had with the SEC: the latter was accused of fraud, but managed to settle out of court. However, the former CFTC (Commodity Futures Trading Commission) President’s words reveal a strong desire for regulation in the cryptocurrency sector, which is still in its infancy and therefore prone to speculation and fraud.
It is therefore necessary to create a legal framework in order to better protect investors and to curb the excesses of certain platforms. This is what Gary Gensler is trying to achieve, and it remains to be seen how the exchanges will react to these calls for regulation.