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For many people, cryptocurrencies like Bitcoin are part of an exciting and lucrative new financial frontier. But to the nation’s biggest market watchdog, Gary Gensler, they look like “the Wild West” – and he’s promising a crackdown.
The cryptocurrency market has exploded. It is currently estimated at is worth around $2 trillion, thanks to the explosive popularity of Bitcoin and other virtual currencies like Dogecoin.
Amateur investors, especially younger ones, have started buying and trading cryptocurrencies, lured by the thrill of big returns. Over the past year, the value of Bitcoin has increased by 300%. And cryptocurrencies are increasingly attractive to traditional investors.
But the cryptocurrency market is extremely volatile, and even though it is becoming more mainstream, it continues to be popular among bad actors.
In recent months, hackers have demanded ransomware payments in Bitcoin because it is easy to transfer and difficult to trace. And there have been numerous reports of thefts and burglaries on cryptocurrency exchanges where cybercriminals got away with other people’s virtual assets.
In a recent speechGensler, the head of the Securities and Exchange Commission (SEC), decried the lack of transparency and clear regulation, and promised the commission would take action to protect investors, which is a key part of the SEC’s mission. ‘agency.
“Investors are really not getting the information needed to judge risk and understand risk,” Gensler said. “If we don’t sort things out, I’m afraid a lot of people will get hurt.”
The process is still in its early stages, but here’s what you need to know.
So who is Gensler?
Gensler is an experienced regulator, having worked on Capitol Hill and at the Treasury Department. When he headed the Commodity Futures Trading Commission during the Obama administration, he played a key role in drafting and implementing new rules that apply to a segment of the market called derivatives.
Gensler also knows a lot about cryptocurrencies. Most recently, he was a professor at the MIT Sloan School of Management, where he focused “on blockchain technology, digital currencies, financial technology and public policy.” (One of his courses is available for free online.)
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How are cryptocurrencies currently regulated?
The market has grown so fast that regulation has not kept pace. So policymakers have been talking about reining in cryptocurrencies under a new regulatory framework for years. But so far this has not happened.
This leaves millions of people trading cryptocurrencies and related assets without clearly defined trading rules.
It has also complicated the life of professional investors and companies that do business with cryptocurrencies. Tiffany J. Smith, a partner at law firm WilmerHale who runs a cryptocurrency regulatory practice, helps her clients mitigate risk.
“In the absence of, you know, definitive regulation that applies to crypto assets, we’re working with them to develop policies, procedures, and processes,” she says.
So what to expect first?
Clearer definitions are one of the most pressing issues.
Since cryptocurrencies are relatively new, there aren’t even universally accepted definitions for some of the most basic terms. Can assets traded on cryptocurrency exchanges be called securities, or is it something completely different? Is Bitcoin a commodity?
This goes beyond semantics; It can determine which regulator has the authority to regulate cryptocurrencies and related assets.
Robert J. Jackson Jr., a New York University Law School professor and former SEC commissioner, says clarity is extremely important.
“It is long overdue for regulators to know who is responsible for this, and this clarity will benefit the market,” he said. “It will benefit investors. It will even benefit members of Congress and other public policymakers who want to know who to ask and who to hold accountable for what happens in these markets.”
What else can we also expect sooner?
The determination of competence will also be essential.
Until there, the SEC and the CFTC have shared regulatory responsibilities. They tried to control cryptocurrencies with laws that are already on the books, even though they were really written for other types of traditional assets like stocks or bonds.
Smith expects this to continue until there are new cryptocurrency-specific regulations, which means regulators will continue to adapt current frameworks for the virtual currency market.
“We’re going to see the SEC and the CFTC use their current powers to regulate the market as best they can,” Smith says.
But Gensler called on Congress to give regulators the power to write new rules.
He also wants more resources – more money and manpower – to regulate cryptocurrencies. For years, SEC and CFTC executives have complained that Congress hasn’t given them enough money for their work.
Are specific actions expected?
There will certainly be new regulations proposed; It’s not clear in what form.
Gensler didn’t nod, and he didn’t elaborate on specific actions the SEC might consider during his speech.
But in his speech, Gensler called for the need for “safeguards,” or actions to protect individual investors, for cryptocurrencies.
The SEC is therefore likely to take a closer look at aspects such as the potential for market manipulation, determine the fundamental rights of amateur investors and bring more transparency.
Congress is also proposing new rules. The Senate included a provision to toughen tax enforcement on cryptocurrency players in its recent infrastructure bill, though the ultimate fate remains uncertain given the House has yet to weigh in. .
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How does the industry approach regulation?
So far, professional investors have said they would welcome new regulations, as long as they are not too strict.
Robert Jackson, the former SEC commissioner, says the regulations will broaden the appeal of cryptocurrency assets.
“The market will be better off because assuring investors that they are getting the kind of transparent pricing they are used to in US markets will encourage other investors to consider the possibility of investing in cryptocurrency,” says -he.
But rules perceived as too strict will inevitably spark fights. Cryptocurrency industry lobbyists have tried to fight the Senate rules, calling the tax crackdown too broad.
How will the new regulations change cryptocurrencies?
It’s a fascinating existential question. Cryptocurrencies were born out of this iconoclastic desire to have assets independent of governments and central banks. Nobody really knows what will happen to him when this structure changes.
But many believe new regulations could help cryptocurrencies become a bigger part of our daily lives. For example, some companies, including AMC Theaters, have already announced that they will accept cryptocurrencies as payment.