Gary Gensler, head of the United States Securities and Exchange Commission, has fired another warning shot against the crypto industry after the billion-dollar FTX case. “The track is getting shorter and shorter,” the 65-year-old told Bloomberg. Most space players are “wild west casinos”. The message is clear: the days of unregulated exchanges and the like are over.
The SEC boss also criticized the newly created practice of so-called “proof of reserves”. It became popular after FTX crashed. Sam Bankman-Fried’s 135-company crypto empire collapsed in November 2022 within a week after holes in its balance sheet and evidence of embezzlement of client funds became public knowledge. The US Attorney’s Office already considers FTX one of the “biggest financial scandals” in its history. Between 30 and 50 billion US dollars would be missing.
Critics call for tougher action from the SEC
In response to the disaster, major crypto exchanges like Binance disclosed their assets to prove their solvency. This form of evidence is “neither a complete record of a company’s assets and liabilities, nor sufficient to segregate client funds under securities laws,” Gensler said. The practice has also been criticized within the crypto industry with these arguments, for example by Jesse Powell, ex-CEO of Kraken, a major crypto exchange.
Shortly after the FTX crash, fears arose in the industry that the SEC would tighten its line against the crypto. Shortly after, US Democrat and crypto opponent Elizabeth Warren called for “more aggressive action” against the industry. “The SEC failed to legislate and anticipate industry disasters and protect consumers, from Terra-Luna to FTX,” Rep. Josh Gottheimer said during a hearing in early December 2022.
No clear crypto regulations
The SEC is already in litigation with several major companies, including Ripple and Binance. The accusation: your tokens are illegal securities. From the perspective of the financial supervisory authority, this applies to almost all so-called Altcoins. If this view prevails, most companies could face hefty fines, but possibly jail time as well. But so far, there are still no clear regulations for crypto in the United States. In early 2022, US President Joe Biden called for the creation of a legal framework for the industry by executive order.
Is the SEC complicit?
The SEC is now under pressure to act due to the FTX scandal. The agency’s attorney general resigned after his involvement with FTX founder Sam Bankman-Fried became public knowledge.
Some US politicians, like Republican Senator Tom Emmer, blame the SEC in part for the disaster. Gary Gensler is responsible for “regulatory failures” and should be brought before Congress.
Brian Armstrong, CEO of the largest US crypto exchange, also sees responsibility for the SEC. Their inaction in creating moderate regulations reportedly led to 95% of crypto exchanges fleeing to unregulated countries. FTX was registered in the Bahamas. It makes no sense now to punish American companies for this failure.
Do you want to buy cryptocurrencies?
Trade over 240 cryptocurrencies like Bitcoin and Ethereum on Phemex, the platform for beginners as well as experienced investors.
To the supplier
The latest issues of BTC-ECHO Magazine
You might also be interested in