- The United States of America is an odd place. We sometimes wind up with insufficient financial regulation because we have so many financial regulators
- Congress appoints Gary Gensler, the chairman of the Securities and Exchange Commission, to the position
- Cryptocurrency is difficult to govern since it is difficult to define. Cryptocurrencies are referred to as currencies by genuine believers, but they are viewed differently by US regulators
The United States of America is a strange country. Because we have so many financial regulators, we sometimes end up with insufficient financial regulation. Cryptocurrencies are the most recent example. The bitcoin and cryptocurrency markets have become far too large to be ignored – and yet that is exactly what has occurred. Prices, volume, and volatility have no official public data. Crypto exchanges are governed by no one body. No one can guarantee that investors are adequately protected. Even libertarian crypto enthusiasts are asking when the federal government will intervene.
Mike Novogratz, a fund manager who has helped lead the drive into the asset class, told CNBC that if rules of the road were established, the market would feel comfortable, and proposed that Congress appoint Gary Gensler, the chairman of the Securities and Exchange Commission, to the position.
It will be nice when Gary finally addresses it, as mentioned by Novogratz to his fellow Goldman Sachs graduate that he’d like to control the entire crypto industry but he does not have the authority. It all adds up to a uniquely American regulatory blunder.
Waiting for Gensler to acquire all of the cryptocurrency has become the Wall Street equivalent of waiting for Godot. The fundamental issue is that financial regulation in the United States is disjointed. Multiple federal banking and market authorities with overlapping responsibilities, as well as state regulatory systems, are in place.
There is no one genuine authority that can coordinate all the moving elements and bridge differences, as JPMorgan Chase CEO Jamie Dimon wrote in his annual letter to shareholders.
This isn’t totally a negative thing in the long term. Checks and balances are as American as apple pie and junk bonds, and having so many regulators protects against any one of them making a mistake. However, this system has flaws. In a regulatory sense, new goods that are neither fish nor fowl can slip through the gaps.
Cryptocurrency is difficult to govern since it is difficult to define. Cryptocurrencies are referred to as currencies by genuine believers, but they are viewed differently by US regulators. Bitcoin, for example, has been classified as a commodity. Other cryptos are seen as investments. The irony for crypto market players is that if a cop like Gensler was already on the street, they may be better off. The various parties may be able to get to know one another and come to an agreement. As Novogratz pointed out, it may even be a relief.
Regulators may now find that the only approach to gain a hold on the crypto markets is to go all-in and use their general enforcement capabilities to put things right. The SEC has already filed a number of crypto-related lawsuits. CFTC Commissioner Dan Berkovitz has expressed reservations regarding the legality of any derivatives transactions conducted using decentralized finance, or defi, systems that employ blockchain technology to eliminate intermediaries. Congress is on the matter, as is customary. Senator Elizabeth Warren, a Democrat, wrote to Gensler earlier this month, asking if the SEC has the appropriate power to fix current regulatory loopholes that expose investors and consumers to hazards in this highly opaque and volatile sector.