US Senator Elizabeth Warren has recently suggested that the SEC should turn its watchful eye toward cryptocurrency. Warren chairs the Senate Banking Committee’s Subcommittee on Economic Policy, making her opinion an important one in the world of financial regulation.
Warren made her concerns about crypto known to SEC chairman Gary Gensler on Wednesday, noting that she felt as though the highly volatile asset posed a threat due to its lack of oversight. Warren pressed Gensler to lay out a plan to legislate cryptocurrency by July 28, stating that it was vital for the SEC to demonstrate that it could protect US investors.
Senator Warren Turns Attention to Cryptocurrency
In an official statement, Senator Warren explained her position: “While demand for cryptocurrencies and the use of cryptocurrency exchanges have sky-rocketed, the lack of common-sense regulations has left ordinary investors at the mercy of manipulators and fraudsters.”
Her sentiment echoes a common cry among regulators who have sought to rein in cryptocurrency recently. Chief among those regulators is the government of China, which has recently begun cracking down on cryptocurrency mining and exchanges within the country to an unprecedented degree. China’s crackdown has been so thorough that it’s had a noticeable effect on the production of Bitcoin on a global scale, with some of the world’s biggest mining operations shutting down overnight.
Could the US be heading in a similar direction? Warren continues, “These regulatory gaps endanger consumers and investors and undermine the safety of our financial markets. The SEC must use its full authority to address these risks, and Congress must also step up to close these regulatory gaps.”
As of the time of this writing, neither Gensler nor the SEC had made an official statement regarding Warren’s recommendations.
Discussions About Crypto Mounting Worldwide
Some of the world’s largest economies have been turning their focus toward cryptocurrency more than ever recently. The Group of 20, the largest 20 economies in the world, will be meeting in Venice over the weekend, where they are expected to discuss cryptocurrency among other topics.
In the US, prominent government officials in the financial sphere have also begun discussing the threats they feel crypto poses. Treasury Secretary Janet Yellen, for instance, joined Federal Reserve Chairman Jerome Powell in calling for new regulations to be placed on cryptocurrency in light of how quickly the new standard is evolving.
Why Is Crypto Different from Securities?
Unlike traditional securities, cryptocurrency isn’t regulated by any official oversight board. While the SEC has tight control over most financial products that are traded on Wall Street, crypto is so new that it currently falls entirely outside of the SEC’s scope. As such, investing in crypto comes with a number of risks.
For one thing, the complete independence of the standard makes it extremely volatile. Instead of the standard’s value being tied to a country’s economy or a company’s market performance, it’s based entirely on investor sentiment. This leads to wild swings in the monetary value of cryptocurrency and can lead to almost unlimited losses for unlucky investors.
And, Warren points out, cryptocurrency exchanges are more profitable and popular now than ever before. Exchanges have shown a marked increase in activity this year compared to just one year ago, spurred on by the same wave of amateur investing interest that led to the January 2021 GameStop short squeeze.
Very Online Trading Meets the Real World
Some critics have called this situation a “reality check,” as an extremely online standard brushes up against government regulators. Should the US move to levy stricter controls on cryptocurrency, enthusiasts will likely respond with outrage.
One Reddit user, responding to the news of Warren’s opinion on cryptocurrency, bluntly states “They want to control us.”
Crypto’s strongest supporters typically discuss its decentralization as its key strength, while governments typically view this as a major vulnerability in the standard. The notable exception to this rule is seen in El Salvador, where the government recently passed a law that made Bitcoin legal tender within their borders.
What Would Government Regulation Do to Crypto?
If the US passes regulations that bring cryptocurrency into the fold along with securities and stocks, then it would result in a very different crypto exchange market. One of the defining features of cryptocurrency is how difficult it is to trace transactions. Government regulation, by its very definition, would need to be able to track individual transactions, thus pushing back against a major feature of the standard.
The question now is whether the SEC and the US government have an interest in passing such regulation. With influential senators and the Secretary of the Treasury calling for such regulations, the momentum on such decisions seems to be impossible to stop. While enthusiasts push back against such suggestions, now might be the time to start envisioning a future for Bitcoin that is a bit less decentralized and a bit more institutional.