In his latest attack on the crypto industry, Securities and Exchange Commission chairman Gary Gensler questioned its decentralization properties.
Speaking at the Securities Industry and Financial Markets Association’s (SIFMA) annual meeting on Oct. 24, Gensler said that he doesn’t view the decentralization of cryptocurrencies as a factor.
He acknowledged that finance has been centralized and concentrated “since antiquity.”
He added that there is a “tendency for central intermediaries to benefit from scale, network effects, and access to valuable data.”
For example, Gensler said that just four asset managers managed over 80% of the total net assets in U.S. index funds.
Are crypto exchanges really decentralized?
However, the SEC boss doesn’t see it this way, tarring the crypto market with the same centralized brush.
“We’ve even seen centralization in the crypto market, which was founded on the idea of decentralization. This field actually has significant concentration among intermediaries in the middle of the market.”
It’s clear that he is referring to crypto exchanges like Coinbase, Binance, and FTX. These have all become centralized profit-guzzling giants in recent years.
Gensler wants to categorize crypto assets as securities so that he can regulate exchanges with the same rigorous rules that stock brokers and exchanges face. This is likely to make it harder for retail traders. On the other hand, it would likely benefit institutions that can jump through the extra hoops.
“As it relates to the intermediaries, the so-called crypto exchanges or lending platforms and the like, they’re highly centralized,” he claimed.
As a result, the SEC plans to scrutinize tokens listed on exchanges and take action on offering unregistered securities.
Baby and the bathwater
It seems that the agency is trying to throw out the baby with the bathwater. Large crypto exchanges may be centralized, but the majority of the digital assets they list are not.
The only way Gensler and company can get their way and crack down on crypto is by classifying the decentralized assets as centralized securities rather than regulating the companies directly.
There is hope that the proposed Lummis-Gillibrand crypto bill will give the CFTC more authority over regulating the asset class. However, legislation is not likely to see the light of day in the U.S. until later next year.