The battle for investor protection: SEC’s stand against crypto giants

2023-07-11 by

Hugues Marty

Cryptocurrency, the digital currency revolutionizing the financial landscape, is facing a fierce battle with the United States Securities and Exchange Commission (SEC) over investor protection in the digital currency markets. In recent years, major players like Bitcoin, Coinbase, and Binance have gained popularity among investors seeking to digitize their assets. However, SEC Chairman Gary Gensler argues that the current cryptocurrency system poses significant risks that the public is not fully aware of, leading to a need for reform.

While the responsibility to invest wisely lies with the public, the current infrastructure of crypto exchange platforms severely limits investor power and protection. The SEC has raised concerns regarding how these large cryptocurrency corporations manage investor funds, highlighting the disparity between the regulations governing conventional markets, such as the New York Stock Exchange, and the lack of such regulations in the digital currency space. To ensure fairness and investor protection, the SEC aims to bring these corporations into compliance with existing securities laws.

One of the main issues at hand is the commingling of investor funds within digital currency databases. This practice poses a significant liability that would not be permitted in traditional investment markets. For instance, the New York Stock Exchange would be prohibited from running a hedge fund since it would trade against the general public, essentially hindering access to investments for individual stock market participants. Similarly, digital currency services should not be allowed to pool investors’ funds and reinvest them without their control, potentially exposing them to higher risks.

The discrepancies between the legality of investment practices, the activities of digital currency companies, and the public’s understanding of their investments are evident. Chairman Gensler has been increasingly assertive in his pursuit to address these concerns. He argues that the prevalence of digital payment options renders the need for cryptocurrencies obsolete. Consequently, his frustration with the SEC’s limited authority in this domain has fueled his aggressive stance, leading to the recent lawsuit against Coinbase, the second-largest crypto exchange by volume, for unregistered exchanges and sales.

Coinbase is not the only company facing regulatory issues. Binance, another major player, has been advertising itself to the American public while evading US law and SEC regulations. Globally, these companies are pushing the boundaries of security laws to operate freely. This conflict highlights the struggle between the SEC’s pursuit of compliance and the companies’ reluctance to adhere to regulations that they have avoided thus far.

Despite the negative undertones surrounding the current state of affairs, it is crucial to recognize that cryptocurrency fundamentally thrives on innovation. However, this innovation has brought about a complex investment landscape due to the lack of regulations. The SEC’s attempts to bring crypto under its jurisdiction stem from the realization that this innovation has grown beyond its control. The ongoing battle resembles a game of cat and mouse, with the SEC striving to enforce compliance while the agencies resist it, having successfully positioned themselves as profit-generating machines for small investors.

The SEC acknowledges the threat these unregulated corporations pose to the stability of the US investment system. Consequently, the SEC is determined to strip crypto agencies of their ability to manipulate investor funds without any oversight. The future of cryptocurrency in the US appears uncertain as this standoff persists, leaving the American public and the global digital investing community caught in the crossfire.

While regulatory measures are necessary to protect investors and ensure the stability of the financial system, it is essential to find a balance that fosters innovation and facilitates the growth of cryptocurrencies. Striking the right chord between regulation and freedom will be critical for establishing a fair and sustainable digital currency landscape. As the conflict unfolds, the industry and regulatory bodies must come together to navigate this intricate landscape and unlock the full potential of cryptocurrencies while safeguarding investor interests.