“The retail public should be alert to…getting marketed to on platforms,” SEC chair Gary Gensler said this week.
Evelyn Hockstein/Reuters/Bloomberg
A number of high-profile global financial authorities have redoubled their calls for regulation of the digital-asset space this week and warned over the integrity of cryptocurrency markets.
Bringing the emerging digital-asset industry under the reign of lawmakers and regulators is continuing in the U.S. and Europe—but progress remains slow as billions of dollars continue to flow into the asset class from institutions and individual investors.
“Crypto-assets are bringing about instability and insecurity—the exact opposite of what they promised. They are creating a new Wild West,” Fabio Panetta, a member of the executive board of the European Central Bank, said in a speech at Columbia University on Monday.
Panetta said that, in the absence of controls, crypto assets were driving speculation and exploiting regulatory loopholes that leave investors without protection.
“Many invest without understanding what they are buying,” Panetta said. “Like in a Ponzi scheme, such dynamics can only continue as long as a growing number of investors believe that prices will continue to increase…until the enthusiasm vanishes and the bubble bursts.”
Changpeng Zhao, the founder and CEO of Binance—the world’s largest crypto exchange—responded to Panetta’s comments at the FT Crypto and Digital Assets Summit on Tuesday, calling them “a misconception.”
Zhao pointed to volatility in other assets, such as shares in companies like Tesla (ticker: TSLA) and Chinese tech stocks like Alibaba Group Holding (BABA), as evidence of intense swings in other markets that could hurt investors. He added that exchanges “should do the due diligence on the coins they list, and we do that to the best extent we can,” noting that Binance follows the rules of jurisdictions in which it operates regarding which digital assets are available for investors to buy.
But Panetta’s viewpoint appears to be widely shared.
“I would guess [Panetta’s is] the view of not only the Governing Council, but most regulators or political authorities,” said François Villeroy de Galhau, the governor of the Bank of France, said at the same FT summit. “On substance we’re probably not very far [off].”
The Bank of France has been one of the most active central banks in the digital-asset space, conducting a number of experiments with private actors linked to finance using the blockchain and a central bank digital currency. Indeed, de Galhau said that crypto assets bring technological value in addition to new services, lower costs, and speed—and that the fast-growing world of decentralized finance cannot be ignored.
“Having said that, we should regulate,” the French central banker said. “Unregulated cryptos would mean a regression, would mean turning back to private fragmentation. And this is really the last thing we need in our world.”
In remarks at the London City Week conference published Tuesday, Gary Gensler, the chair of the U.S. Securities and Exchange Commission, described concerns that echo the ECB on investor protections.
“I think the retail public should be alert to the challenges that you’re getting marketed to on platforms,” Gensler said, referring not only to online platforms facilitating the easy trading of cryptocurrencies, but also meme stocks like GameStop (GME) and AMC Entertainment Holdings (AMC).
“As it relates to crypto, there’s a lot of innovations,” Gensler added. “There’s innovations with regard to trading venues or platforms, and lending platforms and venues. But these trading and lending platforms, they’re not going to survive and persist if they try to do it outside of market integrity.”
The digital-asset industry continues to face uncertainty over the status of cryptocurrency trading as a wave of regulation looms and lawmakers remain divided on how exactly to impose rules on the space.
President Joe Biden issued an executive order on crypto in March. The directive tasked federal departments and agencies with developing frameworks for regulating the vast crypto ecosystem, and proposals are expected sometime this summer or early fall.
How much can be done without new legislative authority from Congress, where the subject of digital currencies has sharply divided many Democrats and Republicans, is unclear.
“We want more regulatory clarity,” said Binance’s Zhao.
Write to Jack Denton at jack.denton@dowjones.com
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