Gary Gensler: Crypto market is like 1920s stock market, full of ‘fraudsters’

In a speech given on June 8 at the Piper Sandler Global Exchange & Fintech Conference, the Chair of the United States Securities and Exchange Commission (SEC), Gary Gensler, likened the current crypto market to the U.S. stock market of the 1920s, describing it as being full of “hucksters,” “fraudsters” and “Ponzi schemes.” He went on to suggest that, just as Congress had previously regulated the stock market by implementing securities laws, the SEC could also help to clean up the crypto market by doing the same.

In his talk, Gensler commended the Securities Act of 1933 and Securities Exchange Act of 1934, asserting that these regulations enabled the U.S. securities markets to “flourish” for the next 88 years. He argued that the “crypto securities markets” of today should be entitled to the same protections that these laws offer, as they are “not any less worthy” of these protections.

Gensler pointed to a court ruling against Telegram Open Network to emphasize that crypto asset securities are not exempt from securities regulations, regardless of their utility.

“Some proponents of crypto asset securities argue that their token has an application apart from being an investment instrument,” Gensler noted. “But as the courts in the Telegram case and others have established, having some extra utility does not exclude a crypto asset security from being considered an investment contract.”

The SEC’s crypto-related activities increased by 183% in the six months following the collapse of FTX.

Gensler emphasized that crypto security exchanges must adhere to securities regulations, including the necessity to separate “exchange, broker-dealer, and clearing functions.” According to him, this segregation “assists in reducing the potential conflicts that can occur when these services are combined.”

Gensler denied that it was not possible to separate these three functions, asserting that it just takes effort to do so.

The leader of the SEC asserted that the present crypto market is full of scams due to its failure to adhere to securities regulations, declaring:

Gensler believes the best way to prevent crypto security scams is for issuers to adhere to the law, as these types of frauds are more probable in markets where issuers and intermediaries do not abide by the necessary regulations.

As Chair of the SEC, Gensler has been met with widespread disapproval from the crypto industry, particularly after the SEC took legal action against crypto exchanges Binance and Coinbase. His detractors claim that he has an overly expansive interpretation of the SEC’s regulatory power and is driving away innovation from the U.S.