Crypto space is 'not that decentralized': SEC Chair Gensler

Fri, Mar 8, 2024, 9:40 AM

With the advent of spot bitcoin ETF (BTC-USD) listings approved by the Securities and Exchange Commission in January 2024, many on Wall Street are already looking towards the next stablecoin, ethereum (ETH-USD), to get a spot ETF passed. With bitcoin reaching an all-time high — twice in one week — the interest in crypto has continued to take off, putting pressure on the SEC to take a look at applications for approval.

SEC Chair Gary Gensler sat down with Yahoo Finance Reporter Jennifer Schonberger to discuss the potential for a spot ether ETF and the crypto market at large.

Gensler lays out his feelings of the crypto market in terms of regulations and fraud: "The whole field is rife with abuses and fraud. Look at the series of bankruptcies in '22 and '23 when investors weren't getting the proper disclosures from the middle of the market, the intermediaries, and by the way, for the viewing public, this is not that decentralized. That's part of the Satoshi Nakamoto and the folklore of decentralization, but in the middle, there are intermediaries that are pulling together your hard-earned assets... pulling them together and not giving you the proper disclosures, and they're doing things that we would never allow the New York Stock Exchange to do."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JENNIFER SCHONBERGER: At least 10 firms have filed applications for spot Ether ETPs. I'm wondering, do you see the Grayscale court case that applied to spot Bitcoin ETPs as precedent setting that could apply in general to crypto spot ETPs? Or is there a different set of criteria, depending on the underlying asset?

GARY GENSLER: Again, I don't want to prejudge any one filing. And as you said, there's 10 filings in front of us. So news alert, I'm not going to prejudge that.

But to your question, we look at the facts and circumstances. And that which was in front of us and we approved earlier in January were exchange traded products for Bitcoin, and it was solely to Bitcoin, a important set of filings. I thought that it was the most sustainable path forward, along with the commission, to approve those.

And investors got additional disclosures based upon those exchange-traded products. They got certain protections on the stock exchanges. But they should also, I would say, be aware it's a highly speculative, volatile underlying asset, Bitcoin.

JENNIFER SCHONBERGER: To your point, does the ability to stake Ether change your perspective on whether an Ether ETP is a suitable product like a spot Bitcoin ETP?

GARY GENSLER: Again, I'm not going to speak to the specifics of filings in front of us. I understand the question--

JENNIFER SCHONBERGER: In general, though, can you talk, not about Ether?

GARY GENSLER: I think there's 15,000 to 20,000 of these crypto tokens. And for many of them, the investing public is looking for a better future based upon the efforts of others. And why do I say that?

Think about it. Most of them, Jennifer, you can find an entrepreneur, a CEO and actually interview her and sit down with the business leaders of that. You can find a website. You can find-- the investing public oftentimes, depending upon the facts, are investing their hard-earned funds into a investment contract, is what the law would call it when you're investing in something anticipating a profit based on the efforts of a group.

And this is the law of the land. That's the Supreme Court that lays that out.

JENNIFER SCHONBERGER: But do you view the issue-- I know you're talking about speculation, and you've been worried about fraud and manipulation as it relates to Bitcoin. Do you view that differently as it relates to Ether at all?

GARY GENSLER: I think the whole crypto field has challenges. The whole field is rife with abuses and fraud. Look at the series of bankruptcies in '22 and '23 when investors weren't getting the proper disclosures from the middle of the market, the intermediaries.

And by the way, for the viewing public, this is not that decentralized. That's part of the, you know, Satoshi Nakamoto and the folklore of decentralization. But in the middle, there are intermediaries that are pulling together your hard-earned assets, maybe not Jennifer's, but the hard-earned assets and pulling them together and not giving you the proper disclosures.

And they're doing things that we would never allow the New York Stock Exchange to do. They're trading against you. They're comingling your funds. They're maybe lending your funds out. They're operating as a clearinghouse, a broker, a dealer, an exchange. I think that puts the investing public at risk.

JENNIFER SCHONBERGER: All right, we'll have to leave the conversation there. We're out of time. But, Chair Gensler, thank you so much, as always, for your insights. So appreciate it.

GARY GENSLER: Thank you. I'm sorry we didn't get to that third C.

JENNIFER SCHONBERGER: Yeah, we'll have to talk about China next time-- next conversation.

GARY GENSLER: All right.

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