Former MIT crypto professor Gary Gensler added that both centralized and decentralized exchanges must register with the Securities and Exchange Commission.
SEC Chairman Gary Gensler announced
on Aug. 3 that he considers cryptocurrencies to be securities when sold in an initial coin offering, or ICO.
Speaking at the Aspen Security Forum on Aug. 3, the new head of the U.S. Securities and Exchange Commission
was very clear that he agreed with his predecessor Jay Clayton, who in 2018 said: “I believe every ICO I have seen is a security — we have jurisdiction, and our federal securities laws apply.”
The former MIT cryptocurrency professor was also clear that he felt that the designation should be applied as broadly as possible on the cryptocurrency market.
“Make no mistake,” Gensler said. “It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These products are subject to the securities laws and must work within our securities regime.”
The reason, he added, is simple. “[G]enerally, folks buying these tokens are anticipating profits.”
This is problematic, Gensler said, as it means many of the cryptocurrencies and digital assets on the market today should be considered unregistered securities that are being sold “without required disclosures or market oversight.”
That leaves crypto prices open to manipulation and investors vulnerable, he warned.
While noting that he was speaking for himself and not making a formal declaration on behalf of the SEC and its other commissioners, Gensler added, “I’ve urged staff to continue to protect investors
in the case of unregistered sales of securities.”
This could have a big impact on the SEC’s lawsuit against Ripple
for selling XRP without registering it with the SEC — a case that is likely to be the Commission's first chance to have a court uphold its authority
to regulate cryptocurrencies as securities.
All Exchanges Everywhere
Nor is it just a matter of token producers registering the cryptocurrencies they wish to sell with the SEC, Gensler added. The need to register with the SEC — and in some cases with banking regulators and Commodity Futures Trading Commission
(CFTC) — also applies to platforms on which securities are traded.
Gensler was also clear that this applies to all cryptocurrency exchanges
, including foriegn exchanges that claim to ban U.S. users but can be accessed by Americans using VPNs and the decentralized exchanges
known as DEXs that do not — in theory — have any executive or management team that can be subject to enforcement proceedings.
Beyond that, the registration requirement applies to cryptocurrency lending platforms
, he said, adding:
“The American public is buying, selling, and lending crypto on these trading, lending, and DeFi platforms, and there are significant gaps in investor protection.”