Washington needs to pass legislation to regulate the digital asset market after the swift fall of FTX, the cryptocurrency dominance.
Gary Gensler is the chairperson of the Securities and Exchange Commission. The Supreme Court’s decisions and rules are sufficient, and all crypto exchanges and issues must comply.
“The roadway is getting shorter,” Mr. Gensler said in an interview on Thursday, warning other crypto issuers and exchanges that are not registered with the agency that they could soon find themselves facing enforcement actions.
Wednesday saw the S.E.C. announce that it had settled civil fraud allegations with two former top executives of the FTX empire, Gary Zhang, who was a cofounder of the exchange and Caroline Ellison, who was the chief executive at Alameda’s trading arm. announced that it had settled civil fraud charges with two former top executives of the FTX empire, Gary Wang, a co-founder of the exchange, and Caroline Ellison, who was the chief executive of FTX’s trading arm, Alameda Research, which used billions in FTX customer funds to back its very risky bets.
Former executives pleaded guiltyFederal prosecutors in Manhattan have filed criminal fraud charges against them. They are cooperating with authorities in their investigation of FTX, its founder Sam Bankman-Fried and FTX. Sam was extradited to the Bahamas on Wednesday night. A Manhattan federal judge will hear testimony on Thursday. approved a restrictive bail packageFor Mr. Bankman Fried
What to Know About the Collapse of FTX
What is FTX? FTX is a bankrupt company. one of the world’s largest cryptocurrency exchanges. Customers could trade digital currencies for traditional money or other digital currencies. FTT was a native cryptocurrency. The Bahamas-based company built its business around risky trading options, which aren’t legal in the United States.
The complaint claims that Ms. Ellison conspired alongside Mr. Bankman Fried to prop up FTT’s value. This cryptocurrency was issued by the exchange and Alameda used it as collateral to fund its trading activities.
Many other crypto exchanges also issue their own tokens, including the world’s largest, Binance, which issues BNB. Separately, thousands of start-ups issue digital currencies to generate capital for their ventures, and these are traded on exchanges, or “storefronts.”
But only about six in 10,000 or so of the crypto tokens in circulation at any given moment are registered with the S.E.C., Mr. Gensler estimated, which means that investors don’t get the same kinds of disclosures they would get with investments in stocks.
So the public shouldn’t take confidence in the numbers reported about the volumes traded or the tokens’ values, Mr. Gensler said.
“Financial history would tell you that most of these tokens will fail,” he said, because most entrepreneurial ventures do. And “micro-currencies,” or currencies that have very limited acceptance, have not been adopted because they are simply not useful, he added.
The Aftermath of FTX’s Downfall
The industry was stunned by the sudden collapse of the crypto-exchange.
Mr. Gensler explained that many of those thousands listed on digital asset exchanges and websites are thinly traded cryptocurrencies. They are susceptible to the same kind manipulation as microcap companies or stocks of small publicly traded companies that have a market capitalization between $50 million and $300 millions.
Insiders on these projects can “sell the public on an idea while they’re potentially fraudulently pumping up the stock,” Mr. Gensler said.
“This leads to distorted incentives and puts the public further at risk of the token not being properly registered and having proper disclosures and complying with the various provisions of the securities law about anti-fraud and anti-manipulation,” he added.
Mr. Gensler expressed hope that civil fraud charges against Mr. BankmanFried and Ms. Ellison would be brought against Mr. Wang to show that crypto communities must follow existing securities laws.
Mr. Gensler said he would support legislation to regulate certain crypto sectors, like stablecoins — digital assets ostensibly pegged to the value of a stable asset like the dollar that often serve as a bridge between the worlds of traditional and futuristic finance. According to Gensler, there is clearly investor interest and traditional finance professionals are intrigued by these prospects. But he is wary of bills that could undermine the S.E.C.’s authority.
“I believe that securities law is quite robust and covers much of the activity,” Mr. Gensler concluded, “not only of the tokens but particularly the intermediaries in crypto securities.”
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