SEC Sets Regulatory Focus on Crypto Trading Platforms

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  • On Wednesday U.S. Securities and Exchange Commission Chair, Gary Gensler, said his agency is looking at "every way" possible to bring crypto exchanges to heel according to a Bloomberg article.
  • The SEC, Federal Reserve, and Treasury Department have all all been publicly pressuring Congress to tackle crypto policy in recent months, with little action and no real results.
  • In December, both houses of Congress held informational hearings but that's it. The slow roll of crypto regulations on Capitol Hill can be blamed on several factors, but perhaps the most important is that crypto regulation won't help politicians win elections just yet.

While Congress drags its feet on developing crypto policies, the SEC wants to step in and bring cryptocurrency exchanges under its regulatory authority.

It seems that at least one executive regulatory agency doesn't want to wait around for Congress to take up the issue of regulating cryptocurrencies. According to a Bloomberg report yesterday, the digital asset exchanges where crypto is bought and sold, are on the regulatory radar of the SEC this year.

Ever since the Presidential Working Group issued its findings last fall on a specific type of digital coins, officials at the SEC, Treasury, and Fed have been publicly pressuring elected members of Congress to take policy actions on programmable money. Since that report was issued, the House and Senate have held initial hearings to gather information and score political points -- but that's been about it.

Congressional inaction doesn't seem good enough for SEC Chair

It's reported that Chair Gensler wants to see crypto trading platforms -- such as Coinbase, Gemini, Kraken, etc. -- move under the investor protection auspices of his agency, much like the way the SEC oversees the NYSE and NASDAQ stock exchanges.

Critics maintain that cryptocurrencies and most blockchain-based assets do not meet the classical definition of a security under the Howey Test and shouldn't be governed by the SEC. However, Chair Gensler says "not so" and claims that everyday investors in crypto are at risk without regulatory protections.

"I've asked staff to look at every way to get these platforms inside the investor protection remit," said Gensler in the news article. "If the trading platforms don't come into the regulated space, it'd be another year of the public being vulnerable."

It's not clear if the SEC's regulatory reach for crypto exchanges is overreach or reasonable, but don't expect Congress to help clarify those points this year.

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Crypto regulations won't help politicians win at the polls

Cryptocurrencies are a dog at the polling booth, and I don't mean Shiba Inu or Dogecoin. While 86% of voter-aged Americans have heard of cryptocurrencies, only 16% of adults have actually bought or traded any type of programmable money. Crypto is not a major issue for a plurality of the voting population, let alone a majority of voters. It’s highly unlikely that crypto will be a winning policy issue for either party at the critical midterm elections this November, where majority control for both houses of Congress is up for grabs.

We can expect to see more regulatory power grabs regarding crypto from the SEC, Fed, and Treasury because it's not currently a priority for the legislative branch. Members of Congress are too focused on staying in office, and they need to pass big legislation that instead addresses larger issues such as fighting inflation, education, childcare, and job creation -- because it's not going to be crypto policies..

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