Washington lawmakers and regulators continue to beat the drum for greater regulation of cryptocurrencies, with the latest call coming from Sen. Elizabeth Warren of Massachusetts, the powerful democrat on the U.S. Senate Banking Committee.
In a letter sent to Securities Exchange Commission Chairman Gary Gensler Wednesday, Warren wrote to request information on the regulators authority to regulate cryptocurrency exchanges. She asked whether the SEC “has the proper authority to close existing gaps in regulation that leave investors and consumers vulnerable to dangers in the this highly opaque market.”
Her letter follows comments made by Gensler in recent months expressing concern about the forums where Americans go to buy and sell their bitcoin
or other digital currencies. He told a House Appropriations subcommittee in May that there were “gaps” in the regulation of cryptocurrencies, arguing that crypto exchanges would be his first priority in addressing those deficiencies.
“We have the SEC trying to protect against fraud in manipulation [in traditional stock exchanges,]” Gensler said. “Not so in the crypto world, and so it’s trying to bring the similar protections to the exchanges where you trade crypto assets, as you might expect on the New York Stock Exchange or Nasdaq.”
In June, Commodity Futures Trading Commission chief, Dan Berkovitz, questioned whether peer-to-peer decentralized exchanges, also known as DeFi exchances, are legal under U.S. law. He said that users of DeFi exchanges are not offered the same fraud and manipulation protections provided by traditional financial institutions and don’t work to prevent fraud or money laundering.
“Not only do I think that unlicensed DeFi markets are a bad idea, I also don’t see how they are legal,” Berkovitz said. U.S. law “requires futures contracts to be traded on a designated contract market licensed and regulated by the CFTC.”
In her letter, Warren pointed out that as the the volume of digital assets traded on these forums has grown exponentially in recent years, complaints about losses due to bad actors have surged.
“The harms to consumers as a result of this under-regulated market are real and continue to proliferate in the absence of effective SEC regulations,” she wrote. “During the six-month period from October 2020 to March 2021, nearly 7,000 people reported losses [to the Federal Trade Commission] from cryptocurrency scams, resulting in a cumulative $80 million lost.” Those figures, she added, represent an increase of 12 times the number of reports and 1,000% more in reported losses compared to the same period the year earlier.
Warren noted that “scams have surged on DeFi platforms in particular,” where “developers are often anonymous” and can more easily pull off frauds whereby they raise money selling a digital asset” before disappearing with investor funds.
The senator asked Chairman Gensler to report back on whether he believed that these exchanges are operating in a “fair, orderly and efficient’ manner — the standard that the SEC works to promote for all U.S. financial markets, and what help from Congress he needs to enforce that standard on all cryptocurrency markets. She also asked whether there needs to be greater international coordination over the regulation of crypto exchanges.
The letter, along with recent statements by other key lawmakers on financial oversight committees in both the House and Senate, appears to signal that Congress is intent on holding regulator’s feet to the fire when it comes crypto-exchange regulation.