Crypto Not Under Attack, SEC Chief Denies Operation ‘Choke Point’
US authorities are cracking down on the crypto industry and seem poised to impose stricter regulations on the nascent sector. Many predicted and feared what now appears to be materializing. The recent bankruptcy filings and the turmoil in the industry triggered this response.
In a interview with CNBC’s Squawk Box Gary Gensler, chairman of the Securities And Exchange Commission (SEC), denied an ongoing effort to crack down on crypto. The commission settled a $30 million settlement with crypto exchange Kraken yesterday.
The company has discontinued its betting service offering as the SEC considered this product an “illegal” sale of a security. This settlement is just one of many events that suggest tighter regulations for the nascent industry in the United States.
Encryption running out of regulatory time?
To address this perception, Gensler stated that the SEC is using “every tool available,” including talking to market participants, to ask them to comply with regulations. The SEC head emphasized that a high number of tokens must come under their supervision by registering with the regulator.
Referring to specific trading venues as “casinos,” Gensler reiterated his view that the nascent industry operates like the “Wild Wild West,” supported by a business model “fraught with conflict.” The SEC chairman believes that the regulator has tried to approach and engage with the nascent industry.
In that sense, Gensler urged crypto companies to embrace “time-tested” regulations that protect consumers. The SEC chairman said:
The path ahead is well trodden; whether it’s big companies you follow every day, Apple or other technology companies, or the automotive industry (…), they know how to comply. We have ten out of thousands of registrants who have properly and in good faith registered and made the proper disclosures. It’s about time this group (crypto) did; the runway is terribly short (…).
Moreover, the SEC chairman claims that their recent decisions, their approach to regulation by enforcement and by rules is “nothing new.” Gensler claims that the SEC will not hesitate to continue operating under this scheme against companies like Kraken and others.
“Companies like Kraken can offer investment contracts, but they must have full, fair and truthful disclosure,” says SEC chief @GaryGensler on the settlement with #crypto Exchange @krakenfx. “It is our basic trade. They did not observe the fundamental law.” pic.twitter.com/DisYr4gQKg
— Squawk Box (@SquawkCNBC) 10 February 2023
Crypto companies face attacks from regulators
Nic Carter, the founder of Castle Island Ventures, shared a different view on the current state of crypto regulations in the United States. Carter believes the Joe Biden administration is implementing “Operation Choke Point” on the nascent industry.
This operation was allegedly created during the Barack Obama administration to isolate specific industries from the US banking sector. In that sense, US regulators are “using the banking sector to orchestrate a sophisticated, widespread attack against the crypto industry,” Carter claims:
(…) banks that take deposits from crypto customers, issue stablecoins, engage in crypto custody, or seek to hold crypto as principal have faced nothing short of an onslaught from regulators in recent weeks.
Carter claims that the collapse of the crypto exchange FTX triggered this operation. This company’s failure provided the US government with a “silver bullet” against the nascent industry.
“Choke Point” may have the opposite effect in the US by isolating not the industry, but the country, from technologies and products experiencing high adoption. Thus, clients gain exposure in other jurisdictions that could, rather than protect them as Gensler promised, leave them vulnerable to another FTX-like failure. Carter wrote:
If banking regulators continue the pressure campaign, they risk not only losing control of the crypto industry, but ironically increasing the risk by pushing activity to less sophisticated jurisdictions, less able to handle real risks that may emerge.
