Crypto markets have gained popularity, making them attractive for investment. By large, it seems to be the next big thing. However, investors risk suffering losses if they make poor choices. For instance, some people bought a physical entity of “Dune,” which cannot be tokenized into a non-fungible token. Investors in cryptocurrency markets are also vulnerable to scammers who take advantage of the situation.
The shortcomings have attracted scrutiny and regulatory measures. The Securities and Exchange Commission (SEC) increased regulations on crypto from 18 to 79 between 2013 and 2017. The steps in place will impact the popularity and adoption of various cryptocurrencies. But, SEC is obligated to create a safe market for investors.
Key decision makers at the SEC have been the determinants of how crypto should be regulated in the future. Nonetheless, numerous competing ideas exist among stakeholders at the SEC and the global finance industry at large. The imposed regulations have shaped how SEC views cryptocurrency as tradable security. Laws and restrictions set on cryptocurrency are founded on the values of consumer protection and future innovation.
Gary Gensler is the SEC chairman in the Biden administration. He has made efforts to make cryptocurrency regulation a key concern. The chairman views the mission of the SEC as “to foster capital creation, protect investors by creating and maintaining efficient and orderly markets for everybody. More so, protecting investors will help secure investments made on formed capital. The current SEC managerial team has emphasized protecting consumers, but some consider innovation a priority.
The Securities and Exchange Commission added 20 positions that protect crypto investments from cyber-attacks. The United States has a large crypto market which makes it essential to allocate sustainable resources to protect them. Thus, creating the Crypto Assets and Cyber Unit will help the SEC regulate misconduct in crypto markets and curb cyber insecurity. The reinforced unit will foster the agency’s capacity to ensure that crypto investors are safe. The focal point is for the unit to investigate securities law violations associated with:
- Crypto asset exchanges.
- Crypto asset offerings.
- Crypto asset lending and staking products.
- Non-fungible tokens (NFTs).
- Decentralized finance (DeFi) platforms.
The newly formed oversight division will help point out and curb financial constraints that can affect the economy and make proper recommendations. More so, additional personnel will make the division better equipped at mitigating fraudulent and illegal use of digital currency such as money laundering. Thus, agencies will be directed to work with US partners and allies in a risk free manner.
Two Schools of Thought
Two primary points of view guide the regulation of crypto assets and markets. Gary Gensler holds that the industry operates like the “wild west” and must be controlled. On the other hand, Peirce, the commissioner, opines that enacting bottleneck regulations will restrict innovation.
The chairman has been advocating for crypto regulation which can make him “anti-crypto.” Peirce claims that laws will likely create an unhealthy environment for experimentation and innovation. But, crypto markets have been characterized by fraud and valueless cryptocurrency trade, jeopardizing industry investment.
It is rational to argue that a fraudulent market is more likely to hinder innovation than strict regulations. This calls for measures to strike a balance between both sides. Hence, they have raised concerns about enacting necessary legislation to empower their position. The US Congress has also pushed for legislative action by introducing bills targeting cryptocurrency.
The SEC has stated that the Crypto Assets and Cyber Unit has filed 80 litigations linked to crypto fraud, crypto asset trades, and unregistered crypto traders’ platforms. This has led to monetary compensations and penalties exceeding $2 billion.
The reinforced team has fostered oversight measures enacted by the SEC on 21st July 2022. The move primarily aims to promote “gatekeeping accountability” and curb financial regulators’ challenges in doing due diligence to warrant morality and justice in the finance industry. The SEC has noted that gatekeepers such as attorneys, financial advisors, and attorneys who tend to defend against misconduct make them abandon their responsibilities.
Consequently, investors lose, which questions the integrity and efficiency of financial markets. Such scenarios warranted the SEC to reinforce the Crypto Assets and Cyber Unit to bring fraudulent gatekeepers who try to cover their malpractices. Those involved in crypto markets must comply with the procedures and rules.
The SEC has a challenging task at hand. Hence, increasing the number of fraud analysts, legal practitioners, and staff attorneys would benefit their endeavor theoretically as the industry proliferates. The reinforced team is likely less effective in enforcing restrictive actions as the workforce does not match the industry size.
The move by SEC might have two opposing scenarios. Such as, it might discourage innovation in the industry, or it might be minimal to impact the vulnerable market significantly. Increasing work personnel sometimes does not reflect higher productivity which applies to the case of SEC. For instance, the SEC reinforced the unit responsible for ESG and climate issues. Conversely, the new team took a year to achieve a single milestone, such as taking regulatory action against Vale S.A.
In conclusion, reinforcing the Crypto Assets and Cyber Unit is not likely to substantially affect how the crypto markets are regulated. The agency requires additional resources as only 80 legislative actions have been taken since 2017 with 30 staff members. Consequently, a division with 50 personnel remains small compared to the large industry. Nonetheless, even if the move is small, it is essential as it puts stakeholders in the industry on notice that there is a watchdog policing how the markets are operating. Innovators should be aware of regulations to avoid resistance to change.
Additionally, the legislative unit should promote innovation in blockchain technology by creating a conducive environment for investors and innovators. Commissioner Peirce has proposed a practical approach that curbs fraud while encouraging innovation. The cryptocurrency industry needs support as it is facing a market downturn. The regulatory systems in place are vital as enforcing compliance through regulations provides clear guidelines to foster innovation.