In a public statement to the Financial Stability Oversight Council (FSOC) on Monday, SEC Chair Gensler stated that most cryptocurrencies are securities, the regulator emphasized that, “the law is clear on this.”
Speaking of the issue of the right regulator for the crypto market, the chairman insisted that SEC had power over the majority of cryptocurrencies and that the market operations should come under the agency as they’re actually securities.
The SEC is Here – Now
Gensler’s statement has been heavily criticized by the crypto community. In fact, SEC has disapproved of taking a coercive approach to regulating the crypto sector. Some officials previously said that Gensler and his agency had overreached their authority.
Meanwhile, the chairman of the Commodity Futures Trading Commission (CFTC), Rostin Behnam, stated that the SEC and CFTC are collaborating to oversee the crypto market.
The fundamental issue with crypto regulation is that the CFTC is a derivatives regulator and hence cannot control the spot market, yet they are pursuing access to bitcoin from Congress.
“To the extent that crypto intermediaries may need to one day register with both the SEC and the Commodity Futures Trading Commission (CFTC), I would note we currently have dual registrants in the broker-dealer space and in the fund advisory space.”
It may be unnecessary to debate whether the federal entity should govern the cryptocurrency industry. The fundamental question is how it should be governed.
To achieve this purpose, both entities have made a firm determination on cryptocurrency’s category. To be more specific, they will have to depend on the 70-year case law. The fact of the matter is that cryptocurrencies represent a new category of assets.
Not An Easy Space to Regulate
The CFTC is unable to oversee spot markets at this time. The limited authority presents a significant challenge.
It was reported by the head of this organization that he had approached Congress with a request for authorization to exercise control over the spot market for bitcoin, as well as the market for Ethereum and any other markets for digital products.
The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) are two separate bodies that are responsible for regulating the cryptocurrency market individually.
Unfortunately, their liability is constrained by the question of whether crypto tokens should be categorized as securities or commodities. The two organizations are holding out hope that the enactment of new laws will assist them in resolving this dispute.
Are Cryptocurrencies Securities?
Some in the crypto industry believe Gensler’s statement refers to Ethereum, implying that the second-largest cryptocurrency is now security.
Because of Ethereum’s shift to PoS, assets on multiple other smart contract-enabled blockchains can now leverage the staking mechanism to secure their networks.
Gabor Gurbacs, Strategy Advisor at VanECK, stated that Ethereum’s transition from PoW to PoS may attract the attention of regulators. The SEC’s recent statements have reinforced this viewpoint.
While the SEC Chairman believes that the great majority of cryptocurrency tokens should be categorized as securities, he regards bitcoin as a commodity.
The price movement of Bitcoin might be somewhat similar to that of the traditional stock market, yet these are two fundamentally separate asset classes.
Bitcoin, with a limited amount of 21 million BTC, is not managed or regulated by any institution. Most international jurisdictions recognize it as a commodity.
Fiat currencies such as USD or Euro, which store all card transactions or transfers on a centralized ledger, are kept by a single institution.
Meanwhile, Bitcoin and other cryptocurrencies use blockchain technology. It is a globally distributed ledger that can be maintained and replicated by anyone while ensuring immutability and transparency.
Bitcoin can be compared to gold, a safe-haven asset that grows in tandem in uncertain economic times. Bitcoin is often referred to as “digital gold,” due to its scarce and limited supply.
Experts have repeatedly demonstrated that there is a growing correlation between Bitcoin and a range of traditional financial markets, including the S&P 500, gold, oil, and US bonds.
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Author: Nicholas Say