Gensler: Investors are Not Protected When It Comes to Crypto

United States Securities and Exchange Commission Gary Gensler has big plans to shake up how Wall Street firms and the digital asset industry conduct business. 

In prepared remarks during his testimony before the Senate Banking Committee Tuesday, Gensler said that emerging technologies pose risks to investors, and regulators cannot continue to look the other way. 

“We just don’t have enough investor protection in crypto finance, issuance, trading, or lending,” Gensler said. “Frankly, at this time, it’s more like the Wild West or the old world of ‘buyer beware’ that existed before the securities laws were enacted. This asset class is rife with fraud, scams, and abuse in certain applications.”

Gensler said that more retail investors today are accessing the market than ever before. There needs to be adequate resources for the SEC to protect investors, Gensler said, mentioning that the SEC’s staff has decreased 4% since 2016. 

Senators have been divided over how to best address the growing cryptocurrency industry and increasing prominence of retail investors in the space. 

“In my mind, the SEC’s job is not to make retail investing more expensive or unpleasant or difficult,” said Sen. Pat Toomey (R-PA). “In America, adults investing their own money should be free to decide how to do so.” 

During the committee meeting, Sen. Elizabeth Warren (D-Mass.) pressed Gensler on Ethereum’s high gas fees which she said impact small investors. “In the face of these high, unpredictable fees, small investors can easily get jammed and wiped out entirely,” she said, adding, “Advocates say crypto markets are about financial inclusion but the people who are most economically vulnerable are the ones who are the ones who are going to have to withdraw their money the fastest when the market drops. Does this sound like the path to financial inclusion to you?”

As such she said regulators need to step up and ensure they are building the “inclusive financial system that we need.”

During his remarks Gensler mentioned that Coinbase is not a registered entity, despite the fact that it lists “dozens of tokens that might be securities.” 

Coinbase’s lack of registration is an anchor on a company that otherwise has a market value of being a registered and compliant entity. The exchange also operates in Canada, and does not have a registration there either, according to records from the Canadian Securities Administrators. 

In a recent interview with Blockworks, Andrei Poliakov, the CEO of one of Canada’s only licensed exchanges Coinberry, said that lack of registration would be problematic for exchanges as they trade contracts for delivery — most users on exchanges don’t custody their own assets. 

“Coinbase trades securities — like us. They trade contracts for delivery. You’re buying a promise from us that you can withdraw the crypto when you want it,” he said. “There’s an underlying asset that’s not a security that supports the contract, but at the end of the day it’s a security.”

“Investors get to decide what risks they take, that’s up to investors,” said Gensler. “But Congress said that it should be based on full and fair disclosure.”

This story was updated on Sept. 14, 2021, at 1:31 pm ET.

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