Bitcoin, Coinbase, Binance, and other cryptocurrency entities are currently facing a challenging situation due to the SEC’s regulatory assault on cryptocurrency. As the United States Securities and Exchange Commission (SEC) strives to overhaul the existing cryptocurrency system in the country and aims to replace it with something more equitable for the American public.
Cryptocurrency, also known as digital currency, emerged in 2009 and has since gained widespread popularity, attracting millions of investors interested in digitizing their assets. While this development may initially seem convenient, SEC Chairman Gary Gensler has been emphasizing the inherent flaws in the system, warning that the public is unaware of the risks involved.
It is important to note that the intentions behind this argument are not to place the burden of responsibility solely on the public and their ability to make wise investment decisions. Rather, it highlights the powerlessness of investors in the face of crypto exchange platforms. Without fundamental changes to the infrastructure of these platforms, the prospect of a successful and equitable digital currency world appears bleak.
The SEC’s concerns primarily revolve around investor protection and the operations of crypto exchanges. During a CNBC interview, Gensler highlighted that the general public who invests their money in traditional markets is bound by various security laws governing the investment and management of their funds.
Digital currency corporations, on the other hand, are not subjected to the same regulatory framework, and this is where the central problem lies. There is no valid justification for exempting these corporations from compliance with such laws other than the convenience it affords crypto platforms in reinvesting money. This exemption is severely detrimental to the investing public, and, from the SEC’s perspective, it needs to be rectified. The mission of the SEC is to bring these corporations into compliance with securities regulations, but they are encountering challenges in executing this goal.
One of the main reasons behind the push to enforce compliance is the misuse of investor funds. Many digital currency platforms commingle investors’ funds, which creates significant liability issues that would not be permissible in traditional investment settings.
For instance, the New York Stock Exchange would not be allowed to operate a hedge fund, as it would essentially be trading against the general public that has invested in the stock market. This would render people’s investments in the stock market inaccessible to them, as a hedge fund capitalizes on high-risk investments with potentially higher returns beyond the reach of the general public.
At its core, this concept lacks merit and defies the logic of a successful investment world, creating an imbalanced system. Similarly, digital currency services should not be able to pool all investor funds and reinvest them in ways they see fit to maximize profit, thereby exposing investors to higher risks than they initially intended to take. This deprives investors of control over their own money and puts them in a position where their investments could result in substantial gains for someone else. There is an apparent discrepancy between what is considered “legal” in traditional investment and trading, what digital currency companies are engaging in, and the general public’s understanding regarding the true nature of their monetary investments.
Leading the SEC’s efforts to address these concerns is Gary Gensler, who acknowledges these discrepancies and has recently adopted a more aggressive stance. He argues that in the digital age, there is no need for additional digital currencies. Existing conventional currencies can be digitized through online payment options like ApplePay and similar services. Consequently, he questions the necessity of cryptocurrency as a whole.
Combining this line of thought with the aforementioned risks associated with cryptocurrency, Gensler has become more resolute in his approach. He has always believed that the SEC has the discretion to oversee cryptocurrency matters, but the challenges encountered in bringing about change seem to have pushed him to an extreme and frustrating perspective.
Lawsuit Against Coinbase
On June 6, 2023, the SEC filed a lawsuit against Coinbase, the second-largest cryptocurrency exchange by volume. The SEC alleges that Coinbase engaged in unregistered exchanges and sales of crypto assets, thereby neglecting the necessary safeguards for individual investors’ funds and profiting billions of dollars in the process. It is worth noting that Coinbase is not the only company facing issues. Binance has actively marketed itself to the American public while evading U.S. law and SEC regulations. Globally, these companies are striving to operate above security laws.
Looking beyond the current negativity, it is crucial to recognize the potential for innovation within the cryptocurrency realm. It is indisputable that cryptocurrency is driven by innovation, and the problems encountered stem from the fact that we live in an increasingly technologically advanced world where cryptocurrency represents one of the novel innovations. The creation of cryptocurrencies and their ease of investment and trading signify significant technological achievements. However, the lack of regulation coupled with newfound freedom has created an investment landscape that is difficult to manage. The SEC is now realizing that this innovation has surpassed its jurisdiction, leading to a sudden urgency to bring cryptocurrency under its control.
Consequently, the United States finds itself caught in a game of cat and mouse as the SEC struggles to fully enforce compliance on crypto agencies while these agencies resist entering compliance due to their prior operations without such restrictions. These agencies have effectively promoted themselves as profit-generating entities catering to small investors, which continues to allure individuals. Although their actions and misuse of funds may not be as evident as they would be in the case of the New York Stock Exchange, this does not warrant ignoring these issues.
The SEC acknowledges the risk these corporations pose to the integrity of the U.S. investment system if they continue operating without regulation. Hence, the SEC is making every possible endeavor to restrict crypto agencies from manipulating investors’ funds without adhering to regulations. The future of cryptocurrency in the United States remains uncertain as long as this ongoing conflict between compliance and evasion persists, leaving both the American public and the digital investing world in a state of turmoil.