Right now, the world of crypto is being rocked… turned upside down and shaken out like a dirty blanket. Sure, that sounds dramatic, but… it’s true. All at once, like a strike of lightning, the SEC has brought the hammer of regulation down, dealing decisive blows to the crypto space… and what will be left in the aftermath will be something more structured, something with a more defined purpose. Most importantly, regulation will (hopefully) bring trust to the space. Because as of right now, it’s a bit like the wild west… and some people are making out like bandits.
So, let’s look at what’s going down, and how it ties into the SEC’s Crypto Assets and Cyber Unit… because you’ll be hearing a lot more about them as cryptocurrencies continue to propagate within the global community. It’s not necessarily that the SEC has a problem with crypto, but they do have a problem with people in the space representing themselves, and their organizations, as something they are not.
The “Digital Ponzi Scheme”… that and other types of fraud running amuck are what the SEC is going after. As we speak, malicious actors within the crypto space are taking advantage of the fact that the general public is still learning about cryptocurrencies and can be misled by persons in places of authority. Investors are trusting “crypto experts”, only to be taken advantage of. This is a no-no, and the SEC is cleaning house.
SEC Steps Up
In 2017, crypto was still a blip on the radar for all but the most die-hard techies… but it wasn’t a blip on the radar of the SEC, not by a long shot. Seeing the writing on the wall, this is the year that the Securities and Exchange Commission rolled out what they called their Cyber Unit (since renamed) and began to go after the bad eggs already cropping up and taking advantage of this new “currency” called crypto. At this point, with more than 80 enforcement actions brought to light since the unit’s inception, they have a few notches on their belt.
According to the SEC, fraud is now happening at a large scale in the crypto space, they intend to put a stop to that. Over the last few months, we’ve seen a barrage of complaints filed… in one such example, 11 crypto founders and promoters of a decentralized platform called Forsage got themselves into very hot water. Billing their platform as a way to “work from home”, these persons used the platform (and the 100-year-old Ponzi Scheme playbook) to wrangle more than $300 million from investors across the globe.
Crypto isn’t going anywhere, and as long as we have malicious actors willing to use the public’s trust against them, their behavior will need to be reigned in and regulated to protect people. To make this happen, the SEC has been growing its ranks. In May, they announced a doubling of personnel to combat rampant fraud in the space after the pandemic caused crypto’s popularity to explode with the broader public. As the popularity of crypto has grown, so too have the number of people who see brand new investors as ripe for being ripped off.
No stone will go unturned… digital asset issuers, lending platforms, crypto exchanges, public companies, investment advisors… all can expect increased scrutiny as the unit goes after the bad guys looking to profit from this time of financial transition. SEC Chair Gary Gensler has been vocal about his stance here… and it’s that we must have regulation and uniformity in the space. That tighter regulation is not only necessary, it’s here now… barreling toward any fraudsters at an alarming pace.
Gensler has even compared stablecoins to poker chips. In this observance, Gensler points out that, since the three largest stablecoins were created by trading or lending platforms themselves, this effectively creates a conflict of interest… which, if you think about it, makes sense. What if your bank created and marketed its own coins, would that raise a red flag? While this isn’t the same thing… it’s also walking a fine line ethically.
Gensler’s pursuit of crypto bad guys has been in full force recently, especially after a much-loved stablecoin crash in recent months. Yes, the SEC is on the warpath. They’ve watched as the crypto space has become a playground for tricksters and frauds, and swift action is being taken to rectify the situation. As cryptocurrencies evolve, along with their place in our lives, the space must be whipped into shape so that it, and the traditional financial space, can play nicely together… and so that both have a fighting chance to survive.
While many critics will complain bitterly about oversight and lack of freedom, we must ask: freedom for who? Is it free and fair when a learning public is taken advantage of? Sadly (but not surprisingly), these same actors are ready and willing to frame the efforts of SEC regulators as witch-hunts rather than what they are, a body with the power to protect the broader interests of citizens taking action to hold the feet of crypto players to the fire. Come back next week, as regulations in this space evolve, we’ll keep you informed and help you navigate the murky waters of cryptocurrency.