As US Securities and Exchange Commission strives to establish a digital currency system that is “fair” to American citizens, major players including Bitcoin, Binance and oinbase">Coinbase are locked in a fierce battle to keep the current cryptocurrency network alive and thriving.
Ever since its inception in 2009, digital currency, commonly known as cryptocurrency, has gained immense popularity worldwide, attracting numerous investors seeking to digitize their assets. While this may appear convenient at first, SEC chairman Gary Gensler highlights the deep flaws within the system, which pose significant risks that often go unnoticed by the American public.
While it is not suggested that the public shoulders the majority of responsibility for understanding and making wise investment choices, it is important to highlight the glaring lack of control investors have over crypto exchange platforms. Without fundamental changes to the infrastructure of these platforms, achieving a successful and equitable digital currency landscape will remain an elusive goal.
SEC Prioritizes Investor Protection in Mandating Cryptocurrency Exchange Regulations
The way in which large cryptocurrency companies handle investors’ funds has been a source of concern for the SEC. During his CNBC interview, Gensler stated that numerous security laws must be adhered to while investing and managing funds in traditional markets like the New York Stock Exchange.
Digital currency corporations pose a significant challenge as they operate without adhering to the same regulations. This lack of compliance emerges as a critical issue, with no valid justification for exempting these corporations from necessary laws, except for the convenience it offers crypto platforms in reinvesting funds. Such exemption strongly disadvantages the investing public and is a matter the SEC aims to address. Nevertheless, the execution of these objectives proves challenging for the SEC as they encounter various obstacles in bringing these corporations into compliance with securities regulations.
The urgent drive to enforce compliance on these corporations stems from the alarming misuse of investor funds. A common practice among digital currency platforms involves the mingling of investors’ funds, leading to significant liability concerns that would not be tolerated in traditional investment settings.
Technically, the New York Stock Exchange would not operate a hedge fund due to trading against the general public that has invested in the stock market. Engaging in such investment activities presents a potential barrier preventing people’s access to their investments in the stock market. Given that a hedge fund operates by capitalizing on high-risk investments with high-return profits beyond the scope of general investors, it would render the investments of the public inaccessible to them.
This concept lacks any merit and fails to align with the logic of a thriving investment world. It essentially establishes an imbalanced system where investors provide without receiving. Similarly, digital currency services should not have the authority to pool all investor funds and reinvest them based on their own discretion to achieve maximum profits. This approach introduces higher risks than what the individual investors initially agreed to undertake. Consequently, investors lose control over their funds, and their investments may ultimately benefit someone else significantly. There exists a noticeable inconsistency between the legal framework governing traditional investments and trading, what digital currency companies are currently practicing, and the public’s understanding of the true nature of their monetary investments.
Gary Gensler Takes Charge of SEC’s Crypto Crackdown
Gensler acknowledges these inconsistencies, motivating him to become more forceful in directing the SEC towards finding a solution. His stance is that digital currency is unnecessary given the current digital landscape. Everything that traditional currency provides, from transactions to payments, can be executed digitally through tools such as online payment options and ApplePay. Consequently, he asserts that cryptocurrency is somewhat irrelevant and not justified in the current context.
The combination of the previously mentioned risks of cryptocurrency with Gensler’s belief that the existence of digital currency is not essential has led to his sudden aggressive stance. The thought that the SEC could play a significant role in the regulation of cryptocurrency has always been his conviction, but his inability to enforce his ideas has evidently left him with a feeling of frustration and an extreme standpoint.
oinbase">Coinbase, the second-largest cryptocurrency exchange in terms of volume, found itself facing a lawsuit from the SEC on June 6, 2023. The SEC alleges that oinbase">Coinbase engaged in unregistered exchanges and sales of crypto assets, resulting in billions of dollars in profits. They claim that oinbase">Coinbase neglected the required safeguards for protecting individual investors’ funds. It is important to note that oinbase">Coinbase is not the only company facing issues. Binance, another significant player, has been actively targeting the American market while evading U.S. laws and SEC regulations. These companies, on a global scale, are going to great lengths to operate without adhering to security laws.
Crypto’s Potential for Innovation
There is no denying that the prevailing sentiment surrounding cryptocurrency has been negative and, arguably, daunting. However, it is essential to recognize that at its core, cryptocurrency embodies innovation. The challenges faced in this realm stem from our rapidly advancing technological landscape, with cryptocurrency being one of the new innovations. The development of cryptocurrencies and their seamless accessibility for investment and trading stand as significant technological achievements. However, the lack of regulations coupled with this newfound freedom has ignited an uncontrollable investment landscape. At present, the SEC is only beginning to realize that this innovation has surpassed its jurisdiction, resulting in a sudden urgency to assert control over the realm of cryptocurrency.
Consequently, it seems that the U.S. is ensnared in a vast game of “catch me if you can,” where the SEC struggles to enforce complete compliance among crypto agencies, who, in turn, have no inclination to comply as they have operated without regulation thus far. These agencies have effectively portrayed themselves as lucrative ventures for small investors, which continually attracts people to join. While their improper use of funds and misconduct may not be as apparent or tangible as it would be with the New York Stock Exchange, it does not mean that their actions should be overlooked.
The SEC comprehends the menace that these companies pose to the well-being of the U.S. investment system if they persist in operating without regulation. Hence, the SEC is making every effort to deprive crypto agencies of their power to steer investors’ funds in whichever manner they wish without any regulations. If this unyielding conflict between law and evasion persists, the future of cryptocurrency in the U.S. appears bleak, leaving the American public and the rest of the digital investment world awash in the middle.
