SEC’s Gensler doesn’t see cryptocurrencies lasting long
Regulator says history of ‘wildcat banking’ in U.S. shows limited viability for private forms of money
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Securities and Exchange Commission Chair Gary Gensler said Tuesday he doesn’t see much long-term viability for cryptocurrencies, underscoring the importance of protecting investors in the market and bringing it under regulatory oversight.
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Mr. Gensler likened the thousands of cryptocurrencies in existence to the so-called wildcat banking era that took hold in the U.S. from 1837 until 1863 in the absence of federal bank regulation. Before President Abraham Lincoln created the Office of the Comptroller of the Currency, banks issued their own currencies, which they sometimes refused to redeem for their purported value in gold or silver.
"I don’t think there’s long-term viability for five or six thousand private forms of money," Mr. Gensler said in a virtual event hosted by the Washington Post. "So in the meantime I think it’s worthwhile to have an investor-protection regime placed around this."
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Mr. Gensler, who took office in April, previously taught a class on cryptocurrency at the Massachusetts Institute of Technology, raising hopes among some industry participants that he would be a friendly regulator. Instead, he has repeatedly likened the crypto market to the Wild West, and urged crypto trading and lending platforms to register with the SEC, saying they are likely offering unregistered securities in violation of federal law.
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On Tuesday he took aim at stablecoins, a fast-growing segment of the crypto market that has attracted increased scrutiny from regulators in recent months. These tokens—including Tether, USD Coin and Binance USD—are pegged at a one-to-one ratio to the dollar and say they are backed by high-quality assets. They are used primarily to trade other cryptocurrencies.
"We’ve got a lot of casinos here in the Wild West, and the poker chip is these stablecoins at the casino gaming tables," Mr. Gensler said. He said stablecoins often have aspects of both SEC-regulated investment contracts and banking products but that federal bank regulators don’t have all the authorities they need to supervise them.
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In separate remarks Tuesday, Acting Comptroller of the Currency Michael Hsu said Tuesday the crypto industry is on a path that resembles that of credit derivatives ahead of the 2008 financial crisis. He expressed doubt that cryptocurrency is achieving its goal of promoting financial inclusion and criticized crypto instruments that promise steady yields to investors for failing to explain how those returns are generated.
"I have seen one fool’s gold rush from up close in the lead-up to the 2008 financial crisis," Mr. Hsu said in remarks to the Blockchain Association, a crypto lobbying group. "It feels like we may be on the cusp of another with cryptocurrencies and decentralized finance."
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