SEC Chairman Gary Gensler Stresses Crypto Markets Are Open to Manipulation, Investors Vulnerable

The chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, has called for more investor protection in crypto markets. “This asset class is rife with fraud, scams, and abuse in certain applications,” he said. “In many cases, investors aren’t able to get rigorous, balanced, and complete information on tokens or trading and lending platforms.”

Gary Gensler Wants More Investor Protection in Crypto Markets

SEC Chairman Gary Gensler raised concerns about the cryptocurrency markets at an Investor Advisory Committee meeting last week.

The Investor Advisory Committee, established by Section 911 of the Dodd-Frank Act, advises the SEC on regulatory priorities, including “initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace.”

During his speech, Gensler shared some concerns regarding the crypto markets.

He began by acknowledging that “Satoshi Nakamoto’s ‘Bitcoin Whitepaper’ and the crypto markets that followed have been catalysts for change.” In August, Gensler said Bitcoin’s pseudonymous creator’s “innovation is real” and “it has been and could continue to be a catalyst for change in the fields of finance and money.”

Citing the market cap of all cryptocurrencies, Gensler told the Investor Advisory Committee: “This is an asset class that belongs inside public policy frameworks of looking after investors, guarding against illicit activity, and protecting our financial stability.” He opined:

Unfortunately, this asset class is rife with fraud, scams, and abuse in certain applications … In many cases, investors aren’t able to get rigorous, balanced, and complete information on tokens or trading and lending platforms.

“Right now, we just don’t have enough investor protection in crypto,” the SEC boss described. “The American public is buying, selling, and lending crypto on trading, lending, and decentralized finance (defi) platforms, where there are significant gaps in investor protection.” He stressed:

This leaves markets open to manipulation. This leaves investors vulnerable. If we don’t address these issues, I worry a lot of people will be hurt.

Gensler proceeded to explain that many crypto “tokens are offered and sold as securities.” Commenting on whether a token is considered as a security, he said: “There’s actually a lot of clarity on that front. In the 1930s, Congress established the definition of a security, which included about 20 items, like stock, bonds, and notes.”

The SEC chairman continued: “One of the items is an investment contract,” noting that many tokens in the crypto markets “may be unregistered securities, without required disclosures or market oversight.”

Gensler opined:

It’s best not to wait for a big spill on aisle three — the crypto aisle, with all its tokens, trading and lending going on — to clean up the investor protection issues.

The SEC chair concluded his speech by stating that crypto platform operators and token issuers should “come in and talk to the staff at the SEC.”

He added: “Financial innovations throughout history don’t long thrive outside of our public policy frameworks. If this field is going to continue, or reach any of its potential to be a catalyst for change, we’d better bring it into public policy frameworks.”