Regulatory Body Head, Gary Gensler, Advocates for Parity in Cryptocurrency Market Treatment
In a recent statement, Gary Gensler, Chairman of the U.S Securities and Exchange Commission (SEC), has emphasised the importance of treating the crypto market similarly to other capital markets. This comes in the wake of market events that have underscored the significance of crypto firms adhering to securities laws.
Gensler's remarks were particularly directed towards crypto lending platforms, such as BlockFi, which have faced issues with frozen investor accounts or bankruptcy. The SEC chairman stated that BlockFi, due to its lending product, should be considered an investment company, and the product itself is deemed a security.
The issue with BlockFi, according to Gensler, lies not in how it utilised the borrowed assets, but in its failure to provide the necessary disclosures to investors. BlockFi's practice was to invest the borrowed cryptocurrencies into a pool, package them into loans for institutional borrowers, and invest funds in other securities.
Gensler further clarified that the federal government's concern regarding the crypto market should not be about the type of cryptocurrencies or assets people invest in, but rather about how those assets are used by crypto platforms to determine the protections provided by the law. In the event of bankruptcy, crypto investors, like any other, would have to line up at the court.
The SEC chairman underscored the need for crypto lending platforms to comply with regulations. He stated that federal securities laws designed to protect investors are also applicable to the crypto market. Compliance with regulations, Gensler believes, protects the investing public and increases trust in the markets.
Gensler also mentioned BlockFi as one of the companies involved in Three Arrow Capital's liquidation. He further revealed that the name of the crypto lending business behind the collapse of the hedge fund is Voyager Digital.
In response to concerns about crypto platforms labelling themselves as lending platforms, crypto exchanges, or decentralized finance platforms to dodge compliance for investor protection, Gensler made it clear that such practices would not be tolerated.
The U.S Supreme Court has already decided that the economic realities of a product determine whether it is a security under the securities laws, not labels. Gensler reiterated that crypto markets like lending platforms and investment firms should provide additional protection to prevent fraud.
BlockFi, for instance, borrowed over $10 billion worth of crypto from investors with variable interest rate offers. The SEC chairman stated that BlockFi failed to provide the required disclosures to investors, highlighting the need for transparency in the crypto market.
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