Investigation of the conflict between the SEC and the largest cryptocurrency corporations and the struggle to protect investors in the digital currency markets.
Bitcoin, Coinbase, Binance and other companies are fighting for their lives, as the US Securities and Exchange Commission is doing everything possible to eliminate the existing cryptocurrency system in the US and replace it with a more “fair” one, in its opinion, for the American public.
Since its introduction in 2009, the cryptocurrency, or digital currency, has captured the world and attracted the attention of millions of investors interested in converting their assets into digital form.
At first glance, it seems convenient to many, but, according to Gary Gensler, chairman of the U.S. Securities and Exchange Commission, the system is so deeply flawed that the American public does not even realize what risk it is exposed to.
This argument does not mean that the burden of responsibility largely lies on the public and its ability to understand and invest their money competently, but rather indicates how powerless investors are in front of crypto exchange platforms.
Without changing the very infrastructure of these platforms, there is no hope for a successful and fair world of digital currencies.
Investor protection and crypto exchanges
The SEC has found problems with how these large cryptocurrency corporations manage investors’ money. As Gensler noted in an interview with CNBC, investors are subject to many security laws that regulate the procedure for investing and managing their money in conventional markets, such as the New York Stock Exchange.
Corporations working with digital currencies are not subject to these laws, and this is the main problem. There is not a single good reason or argument in favor of the fact that these corporations should be exempt from compliance with such laws, except for the convenience of cryptocurrency platforms when reinvesting funds.
This causes serious damage to the investing public and, from the SEC’s point of view, should be eradicated.
The task of the SEC is to bring these corporations into compliance with the requirements for securities, however, they face problems in performing this task.
One of the main reasons that prompted these corporations to bring their activities in line with the requirements of the legislation is the misuse of investors’ funds.
Many digital currency databases pool investors’ funds, which creates a huge liability problem that would be unacceptable in the ordinary investment world.
The New York Stock Exchange would also not be allowed to manage a hedge fund, since technically it would trade against the population that invested in the stock market.
People’s investments in the stock market would become inaccessible to them, since a hedge fund capitalizes on high-risk investments with high returns exceeding the possibilities of financing the population.
At its core, this concept has no merit and is devoid of the logic of a successful investment world – it creates a “give-not-take” system.
In the same sense, digital currency services should not have the right to take all the funds received from investors, combine them and reinvest them at their discretion to “maximize profits”, thereby creating higher risks than those that the original investor was willing to take.
Thus, investors lose control over their own money and find themselves in a situation where their investments can lead to significant profits for someone else.
There is an obvious discrepancy between what is “legal” in investing and trading, what these companies that produce digital currencies are doing, and what the public understands about what is really happening with their monetary investments.
Gary Gensler leading the SEC’s crypto crackdown
Gensler recognizes these inconsistencies, which is why he has recently become much more aggressive in leading the SEC to solve this problem. He claims that now everything has been converted to digital format, so there is no need to create new digital currencies.
All the “ordinary” currencies that the world uses can be converted into digital format using online payments, ApplePay and other similar functions. Therefore, he does not see a real need for the existence of a cryptocurrency at all.
This train of thought, as well as all of the above risks associated with cryptocurrencies, pushed Gensler to an unexpectedly aggressive position.
He has always believed that the U.S. Securities and Exchange Commission has the right to dispose of cryptocurrencies, but the inability to bring this to life seems to have pushed him to extremes and frustration.
On June 6, 2023, the SEC sued Coinbase, the second largest cryptocurrency exchange by trading volume. The SEC claims that Coinbase earned billions of dollars on unregistered exchanges and sales of crypto assets by eliminating and ignoring the necessary measures to protect the funds of individual investors.
However, not only Coinbase has problems. Binance actively advertises itself to the American public, while simultaneously evading compliance with US laws and SEC rules. All over the world, these companies are doing everything possible to circumvent security laws.
Looking beyond the negativity: The potential for crypto innovation
It is impossible to deny that so far the tone of the situation has been negative and possibly frightening.
However, it is important to remember that cryptocurrency is based on innovation. These problems exist because we live in a constantly evolving, technologically advanced world, and cryptocurrency is one of such innovations.
The creation of cryptocurrencies and the ease of investing and trading them is a huge technological achievement, but the lack of regulation, combined with this newfound freedom, has become a catalyst for an unmanageable world of investment.
At the moment, the SEC simply realizes that this innovation has gone beyond its powers, so suddenly there was a desperate desire to return cryptocurrencies to the sphere of its control.
As a result, the US seems to be trapped in the “catch me if you can” game, where the SEC simply cannot fully bring the cryptocurrency agencies into compliance, and the agencies themselves do not want to bring themselves into compliance, since they have been working without it so far. These agencies are extremely successful in advertising themselves as profit-making machines for small investors, which continues to attract people. Their actions and misuse of funds are not as tangible and noticeable as if the New York Stock Exchange behaved in this way, but this does not mean that they should be ignored.
The SEC understands the threat these corporations pose to the health of the American investment system if they continue to be unregulated. That is why the SEC is doing everything possible to deprive cryptocurrency agencies of the opportunity to manipulate investors’ funds at their discretion in accordance with zero norms.
The future of cryptocurrencies in the United States seems bleak if this stubborn struggle between the law and evasion continues, as a result of which the American public and the rest of the world of digital investment will drown in the middle.