Recent failures and governmental crackdowns on crypto exchanges have highlighted the risks that US crypto investors face. This is because there is no true comprehensive regulatory structure. Major exchanges such as Binance and Coinbase have been accused by the Securities and Exchange Commission (SEC) of failing to register as securities exchanges. As a result, many investors have become susceptible.
The SEC chair, Gary Gensler, first recognized that the lack of a regulatory framework for crypto exchanges had changed his opinion on the FTX debacle. He demanded that exchanges register with the SEC. The SEC’s regulations, however, have made it difficult for crypto exchanges to do so.
A crypto exchange would face substantial obstacles if it sought to register as a securities exchange. Only crypto assets that have been registered as securities with the SEC can be traded on registered exchanges. Only a tiny number of cryptocurrencies are now registered with the SEC. This implies that several popular cryptocurrencies, such as Bitcoin and Ethereum, are not available for trading on these regulated exchanges.
The SEC’s disclosure standards also fail to take into account the unique characteristics of cryptocurrencies. Bitcoin and other digital assets do not have typical operations and get their value from supply and demand. Other jurisdictions, such as the EU, have developed cryptocurrency-specific disclosure rules. Another country that has implemented such regulations is Japan.
BREAKING: 📉The current absence of proper regulations for #US crypto markets leaves investors vulnerable.
— Walletor (@walletorapp) June 23, 2023
Furthermore, the SEC’s rules prohibit registered broker-dealers from trading cryptocurrency assets. This further narrows the possibilities available to potential investors. In contrast to other major jurisdictions, the United States does not let broker-dealers trade crypto assets alongside regular assets.
The SEC’s role should be to create investor safeguards that allow people to make informed investment decisions. They risk escalating investor losses in the future by failing to develop clear regulations for crypto exchanges.
Finally, the lack of a suitable regulatory framework for cryptocurrencies in the United States creates considerable dangers to investors. The SEC must address this issue by developing a clear and practical registration process. This regime should provide investor protection while taking into account the nature of digital assets.