• What Does Elizabeth Warren Want the Securities and Exchange Commission to Do About Bitcoin Exchanges?

  • Elizabeth Warren has written a letter to Gary Gensler, the chairman of the Securities and Exchange Commission. She’d like to know if the agency has the jurisdiction to regulate bitcoin exchanges. Senator Elizabeth Warren (D-MA) of the United States has long advocated for consumer rights. She is now pursuing her goal of safeguarding cryptocurrency investors. Sen. Warren wrote to Securities and Exchange Commission Chairman Gary Gensler Monday, describing bitcoin as a “very opaque and volatile market,” and requesting that the agency answer by July 28 with details of the SEC’s regulatory power over cryptocurrency exchanges and their users. While it’s easy for proponents of cryptocurrency to cast Warren as a villain, given her earlier assertions that it’s a ‘fourth-rate alternative to real currency,’ Warren’s letter addresses key issues that even some in the business are concerned about.

    Senator Elizabeth Warren, who chairs the Senate Banking Committee’s Subcommittee on Economic Policy, cites four issues that she perceives as consumer risk factors. First, she claims that cryptocurrency exchanges aren’t regulated in the same way that stock exchanges are, despite the fact that they share many of the same characteristics. Second, she cites Gensler’s own admission in May that neither the SEC nor the Commodities Futures Trading Commission (CFTC) have a regulatory framework in place. As a result, state money transmission regulations handle the bulk of the work. ‘These regulations were not originally meant to offer oversight for sophisticated, exchange-like activities and are insufficient to assure a safe cryptocurrency marketplace,’ according to Warren. They’re also inconvenient for crypto businesses, who must juggle 50 separate sets of rules. Third, Sen. Warren claims that faking trading volumes is typical practice in the sector. She cites a May 2019 letter to the SEC from crypto index fund manager Bitwise Asset Management, which claims that 95% of CoinMarketCap’s Bitcoin trading volume is ‘fake and/or non-economic in nature.’

    She feels this amounts to market manipulation, luring traders and their money into investments that aren’t as appealing as they appear. Finally, she makes an inadvertent plug for decentralized exchanges, pointing out that centralized exchanges like Coinbase don’t record individual transactions on the blockchain but can pool traders’ funds. ‘They can also participate in tactics like proprietary trading and wash trading to take advantage of their consumers without proper disclosures,’ according to the report. (Wash trading is a way to inflate trading volume figures and manipulate the market.) Say it with now: Not your keys, not your crypto. According to a February 2021 study from the Federal Trade Commission, over 7,000 consumers lost a total of $80 million to cryptocurrency scams between October 2020 and March 2021 alone—though this does not necessarily include coins and tokens traded on Coinbase and bigger centralized exchanges. Warren also expresses her own reservations about decentralized finance (DeFI), a branch of blockchain-based protocols that allows for financial products to be created without the use of traditional financial intermediaries.

    She’s asking the SEC to address many questions, including how much jurisdiction the SEC has to oversee crypto exchanges and whether decentralized exchanges fall into their own category, in order to gain clarity on the SEC’s approach to cryptocurrencies. She also wants to know if the assets traded on crypto markets are different from those traded on traditional stock exchanges, necessitating additional rules. She also inquires about the fairness of cryptocurrency exchanges and whether the SEC has detected any issues. Coinbase and Binance’s proclivity for being offline amid significant price decreases may appear to crypto traders to be a issue. Finally, does the US need to work with foreign entities to govern global exchanges like Binance, as Warren suggests?

    Gary Gensler is the man who can answer these questions. Similarly, the SEC chair, who formerly taught an MIT course on blockchain technology, has urged for cryptocurrency exchange monitoring, despite the fact that some of it may fall outside of the SEC’s jurisdiction. After all, the Securities and Exchange Commission does not consider Bitcoin and Ethereum, the two most popular crypto assets on exchanges, to be securities. In the same way that Warren does, he sees the SEC’s primary job as consumer protection. Regardless of how pointed the questions are, they’re well worth responding given the hazy nature of cryptocurrency’s regulatory standing in the United States.

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