SEC head says crypto market ‘fraught with scams’

The US Securities and Exchange Commission chairman Gary Gensler sent out a strong message to investors across the world by cautioning them against cryptocurrencies and said the market was riddled with alleged scams. 

Gensler made the comments during a television show aired on Bloomberg. Speaking during the show, the SEC chief investors need to be careful about factors like the lack of tough protection laws, frequent scams and scammers in the sector, and the speculative nature of crypto assets.

Gensler’s statement was reported across cryptocurrency news in India. It also sparked debates on cryptocurrency tax in India and if there is a need for tougher regulations for how to invest in cryptocurrency in India.

His comments come after the US regulatory body’s increased vigilance towards the operations of the cryptocurrency market and the inherent risks associated with it. The decentralized model of the crypto industry often leads to speculative investor behavior which is prone to frequent price fluctuations and instability of asset value. 

In the absence of regulatory action, crypto users may be prone to deceptive and fraudulent activities. Such incidents also impact live cryptocurrency prices and in the past have impacted the performance of the Top 10 cryptocurrencies.

Gensler underlines lack of protection law for crypto assets

The SEC head also discussed Bitcoin ETF applications and defended the complex process that applicants’ proposals have to undergo before they are put before the SEC’s five-member commission for a final decision.

Given the process’ regulatory sensitivity, Gensler avoided making direct remarks on specific applications. However, he did underline the challenges associated with crypto tokens and their potential as investment vehicles.

Gensler’s key concerns included the lack of a robust protection law for cryptocurrencies as is the case with traditional financial instruments like stocks and bonds. He maintained that cryptocurrency trading is not subjected to a similar level of scrutiny which leaves investors with limited options for redressal of grievances in case of misconduct or fraud.

He also delved into the lack of accurate disclosures of returns and profits in the cryptocurrency sector. There are frequent reports of investors facing problems in getting access to detailed information about the tokens they are buying. The lack of access to such comprehensive information can lead to reckless decisions and higher exposure to risks.

Multiple recent incidents of regulatory action against crypto firms 

Gensler’s comments come after cryptocurrency firm Ripple’s partial win over the SEC where the regulatory body has claimed that the platform’s native token XRP was a security. In a landmark victory, a US district court ruled that Ripple Labs didn’t violate any laws by selling the token on public exchanges. The ruling had also sent prices of the XRP token soaring. 

In a separate lawsuit, the SEC has also gone after leading crypto exchanges Binance and Coinbase and has accused the platforms of failing to register their exchanges with the commission. Binance also faces additional charges where its CEO Changpeng Zhao has been accused of misusing customer funds and even “misleading” investors about the exchange’s potential to ward off market manipulation.

Both the crypto exchanges have so far denied the allegations.

According to experts, in case the SEC is victorious in its lawsuits against Binance and Coinbase, it could transform the way crypto markets operate. A win for SEC would assert the regulatory body’s assertion that all cryptocurrencies are securities and hence, come under its jurisdiction.

Disclaimer: This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.

Author: Puskar Pande

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