In recent years, because of the distrust of the people in the conventional role of the governments as the fiat-money issuers, a remarkable escalation has been witnessed in the value of the crypto markets. At the moment, the respective progress is instantly taming the crypto market regarding another chief government operation of imposing regulation on the securities trading and financial markets.
The United States Securities and Exchange Commission (SEC) is the frontrunner in the matter of making crypto markets liable to the complete range of financial regulations. In April this year, Gary Gensler (the SEC Chairman), stated that the upper 5 trading exchanges (occupying up to ninety-nine percent of crypto trading) are potentially trading securities and thus are subject to get registered with the U.S. securities department as well as abide by the set laws.
In the words of Gensler, the financial regulations should be imposed more forcibly, particularly in the case of stablecoins as well as the rest of the crypto tokens. Recently, this May, it was declared by the SEC that the securities regulator would mount up the staff of the Cyber Unit under it to 50 (which was previously 30) officials and rebranded it as Crypto Assets and Cyber Unit to enhance the regulations’ implementation in cryptocurrencies.
In this scenario, the enforcement of the SEC will likely put a significant impact on the operations of crypto markets. The chief impacts (expected to take place sooner) of the top securities agency on the assets class market are discussed here.
Upcoming Tokens May Go through Regulation
The SEC provided its clear viewpoint on tokens in 2017 while the initial coin offerings (ICOs) were at their peak, concluding that DAO coins were included in the category of investment securities. A couple of years back, the SEC filed a lawsuit confronting Ripple Labs Inc. as well as two executives thereof, accusing that the organization infringed the securities laws by not following the disclosure and registration demands for securities offerings while trading XRP tokens. Several issuers of ICOs have been settled or penalized outside the court.
They may shortly bring out securities laws for NFTs also. 1 of the crypto-favoring commissioners within the SEC – Hester Peirce – has cautioned that a few non-fungible tokens could turn out to be troublesome for the investors in terms of the law. While no decision has been taken by the SEC to start any enforcement operations aiming at NFTs, non-fungible token creators have reportedly been summoned by it as included in its inquiry.
Exchanges May Require Registration as Broker-Dealers
In September previous year, while appearing in a hearing in front of the Senate Banking Committee, Gensler mentioned that the registration of crypto exchanges should be done as securities exchanges, and repeated his stance afterward.
On having registration with the securities regulator, enforcement would be put on crypto exchanges to embrace technology systems for complying with the audit in the case of their order books. Another regulation would be to go through stringent rules regarding order execution to avoid market manipulation including consumer balances’ freezing, front running, or wash trading.
Stablecoins May Undergo Strict Scrutiny
This May, after the crash of the algorithmic stablecoin Terra (UST), several concerns have come to front regarding the stablecoins as well as their regulation. Up to $18.5M has been recompensed by Tether (UST) supporters while settling with the Attorney General of the New York in the previous year and fined $41M on the behalf of the Commodity Futures Trading Commission (CFTC) in 2021 for accusations of misrepresenting their reserves.
Since the securities regulator classifies crypto exchanges as the securities brokers, the majority of stablecoins trades are likely to be viewed by it as securities transfers. Although it has not introduced such litigation yet, it has hinted to be among those government agencies that will probe Tether.
Frequently Asked Questions
What is the SEC’s role in cryptocurrency regulation?
The U.S. Securities and Exchange Commission (SEC) is pushing to bring crypto markets under traditional financial regulations, especially for assets it considers securities. It aims to ensure investor protection and market stability.
Why does the SEC believe crypto exchanges need regulation?
SEC Chairman Gary Gensler stated that most crypto exchanges are likely trading securities and should register as broker-dealers. This would subject them to rules around audits, order book transparency, and anti-market manipulation practices.
Are NFTs also at risk of being regulated by the SEC?
Yes, the SEC is exploring the possibility of classifying some NFTs as securities. Although no enforcement action has been taken yet, NFT creators have reportedly received subpoenas as part of ongoing investigations.
How could stablecoins be affected by SEC scrutiny?
Following the collapse of Terra (UST), the SEC has signaled more interest in stablecoins. If stablecoin trades are deemed securities transactions, exchanges handling them could face stricter rules and oversight.
What’s the SEC doing to strengthen its enforcement?
In May, the SEC expanded its Cyber Unit (now called the Crypto Assets and Cyber Unit) to 50 staff members. This expansion reflects the agency’s commitment to cracking down on unregulated crypto activity.
