SEC Regulators Zero In on Cryptocurrencies

The end of August 2021 brought the news of increased regulatory oversight trained on the $2 trillion market in bitcoin and other cryptocurrencies. 

There’s a new sheriff in town

These stronger regulations come after a recent explosion of interest in crypto investments, particularly among younger and first-time investors. This level of enthusiasm was what helped propel the value of bitcoin to rise by 300 percent over the preceding year. Some experts, like U.S. Securities and Exchange Commission (SEC) chairman Gary Gensler, are calling the atmosphere surrounding crypto investments today the “Wild West.” 

Gensler expressed his plans to rein in crypto in a public address and interviews with media outlets that included the Financial Times, saying the industry needs regulation in order to help it survive and thrive over the long term. 

Gensler’s previous experience includes his work as chairman of the Commodity Futures Trading Commission, and as a professor who taught graduate courses on cryptocurrency and blockchain at the Massachusetts Institute of Technology’s Sloan School of Management. He views consumer protection as the heart of his push for greater regulation, an opportunity to provide the transparency and information that investors until now have lacked.

The positives and negatives of an unregulated market

Until this change in attitude from the SEC, regulators in the U.S. had taken a laissez-faire approach to protecting investors from the volatility of crypto markets. In 2019, the SEC publicly stated that it did not even view bitcoin as a security. In the United Kingdom, regulators likewise have kept their hands off of cryptocurrency assets, even though they regulate many of the derivatives based on them. 

In the words of the ancient Romans, the traditional attitude toward crypto has been “caveat emptor” (“Buyer beware”).  

This state of anarchy, in the eyes of some experts, has largely been beneficial, in that it has allowed for free-ranging innovation and exponential growth in the industry. 

Driving out the bad actors

But Gensler, who has requested an expansion of his agency’s regulatory scope from the U.S. Congress, has seen recent news stories that provide strong justification for his claims.

In one of the best-known of these, the decentralized finance (“DeFi”) platform Poly Network suffered a hack in which the attacker stole—then bizarrely returned—tokens with a total value of $600 million. While Poly Network eventually made a deal with the hacker, whom it called “Mr. White Hat,” and even offered him a job as a security advisor, the incident highlights the degree to which such a volatile state of affairs can wipe out immense amounts of investors’ assets. 

Hackers now often extort ransom payments in bitcoin from their targets. They are drawn to crypto’s easy transferability and almost non-existent official trail. As cryptocurrencies continue to gain popularity with even casual investors, experts predict that the situation will only worsen without intervention, as more hackers and other unscrupulous people see the expanding opportunities in a regulation-free zone.