The US Securities and Exchange is currently the regulatory body tasked with regulating cryptocurrencies in the United States. The SEC has been firm in saying that most cryptocurrencies are securities and should be treated as such.
The SEC chair, Gary Gensler, has once again said that most cryptocurrencies should be regulated as securities because they operate similarly. Gensler was appointed as the SEC Chair last year, and he has been staunch in regulating the crypto market.
Gary Gensler says most cryptocurrencies are securities
Gensler was speaking during the International Swaps and Derivatives Association Annual Meeting on May 11, saying, “Most crypto tokens involve a group of entrepreneurs raising money from the public in anticipation of profits – the hallmark of an investment contract or a security under our jurisdiction.”
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Gensler wants the SEC to be given 100% control over the crypto sector. If this happens, the crypto space could be subjected to tough regulations that inhibit innovation. According to Gensler, very few cryptocurrencies could be categorized as commodities.
“Most crypto tokens are investment contracts under the Supreme Court’s Howey Test,” Gensler said. The Howey test is conducted to evaluate the assets that fall within the category of an investment contract. The Howey test says that an asset is an investment contract if money is invested in an “enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
If cryptocurrencies are categorized as securities, they could be subject to strict regulations, and companies offering these assets will have to comply with registration assets. Gensler also said that derivative contracts where cryptocurrencies were the underlying asset were also subject to SEC oversight.
The SEC also requires oversight over the decentralized finance (DeFi) sector. Therefore, the SEC wants decentralized exchanges (DEXs) that offer derivatives to be registered with the commission.
However, Gensler’s remarks come amid a contentious debate over whether cryptocurrencies meet the threshold to be categorized as assets or commodities. The ongoing lawsuit between the SEC and Ripple has begged questions over the differentiating factor between a token and a security.
Stablecoin crash spooks fear of regulation
US regulators have been debating the risk posed by stablecoins to the economy. The fears have now been ignited with the collapse of the UST stablecoin and the LUNA token. UST, whose value is supposed to be pegged at $1, had dropped to around $0.20, creating concern over whether stablecoins are safe.
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