SEC chair's crypto regulation outlook ‘clear as mud’: Analyst
Caitlin Long, Avanti Bank & Trust Founder & CEO joins the Yahoo Finance Live panel to discuss the latest with crypto regulation.
Video transcript
ZACK GUZMAN: I want to switch over and check in on the action in the crypto space after SEC chair Gary Gensler came out swinging with some updates on how he sees his agency stepping up regulations on tokens and lending platforms-- not necessarily shaking up prices here, Ethereum and Bitcoin both up today. In his thoughts though, presented at the Aspen Security Forum, Gensler hinted at perhaps approving a Bitcoin ETF, even if it were limited to cash-settled CME traded Bitcoin futures. So that might be a positive in some eyes. But the negatives some people are pointing out will focus more on pressure to label a lot of the other cryptocurrencies outside Bitcoin and Ether as securities. In a corresponding video on his Twitter, Gensler says it all boils down to investor protections. Take a listen.
[MUSIC PLAYING]
GARY GENSLER: I think that moving forward, promoting investor protection is not only good for you and for anyone who would consider investing in these assets, I think that it's the only real viable path forward for this nascent technology. See, at the heart of finance is trust and trust rests on investor protection. And so that's what the SEC has to do with crypto, investor protection.
ZACK GUZMAN: Shout out to the production value on that SEC video. I kind of like what they're doing there. But joining us now for more on what it all means, happy to bring back on, Caitlin Long, CEO of Avanti Bank. One of the few licensed regulated crypto banks in the space. And Caitlin, I mean, there's a lot to dig into when it comes to not just what we're hearing from Gary Gensler but also what Congress is trying to do here but we'll start with what we heard from the top of the SEC yesterday. I mean, what jumped out to you about maybe clarification on either the Bitcoin ETF that people have been waiting for there or maybe more pressure on things that aren't Bitcoin?
CAITLIN LONG: Oh, boy. Yes, there's a lot going on and Gensler is a huge part of it. I'm surprised he hasn't acted more up until this point. He's been in his role now for several months and if you go back to his confirmation hearings, he was asking Congress for clarity.
And what came out of yesterday's speech is that he's taking some positions in spite of the fact that Congress hasn't acted. So there's a jump ball going on, is the SEC going to interpret its authority more broadly and start taking enforcement actions or is the SEC, and of course, other agencies in Washington, going to wait for Congress to give them instructions. But very clearly something's happening and I must say, his first video is interesting because consumer protection is at bottom one of the big concerns. There are bad actors in this sector, there are institutions that are doing things that had they registered onshore in the United States would be considered illegal and they would have been shut down already. But they're operating overseas offshore, and in many cases, actually serving Americans.
ZACK GUZMAN: Yeah, it's interesting because you talk about maybe what they can do without getting more powers here from Congress. And one of those is kind of labeling what is a security and what's not. And he kind of waded into that, you don't want to get into specific tokens but I just want to read what he kind of had in his prepared speech there on that topic.
He said, "Folks buying these tokens are anticipating profits, there's a small group of entrepreneurs and technologists standing up and nurturing the projects. I believe we have a crypto market now where many tokens may be unregistered securities without required disclosures or market oversight. This leaves prices open to manipulation. This leaves investors vulnerable." I mean, that is kind of what you're talking about here, investor protections.
But there's a lot out there beyond Bitcoin and Ether. And you think about the exchanges being impacted here, or maybe what you guys could offer being impacted. Talk to me about how big that is and how hard it is for people to agree on what is a security what's not?
CAITLIN LONG: Well, it's so interesting, because the SEC almost two years ago put out guidance that was supposed to clarify this, and it's clear as mud. And the industry has been saying we really would like to have clarity because we want to know where the guardrails are so we can stay within them. In most cases, the compliant actors are interested in staying within those guardrails.
And that was one thing I disagreed with Gensler's speech yesterday when he said this is clear. It is not. It is clear as mud and it does need to be further clarified. And what's happened is the SEC has taken the stick approach as opposed to the carrot approach, which is to use enforcement actions and sue the issuers of these tokens that may not have clarity. And instead, what the SEC should be doing is enabling the innovators who are trying to protect consumers and are not trying to defraud anyone, by providing enabling guidance. And that is not what the SEC has done.
AKIKO FUJITA: And so there may not be more clarity right now but it does give us a little insight into Gary Gensler's thinking. And this morning, we heard him say that look, if you look at the crypto exchanges, they're just not under the same regulatory regime like a New York Stock Exchange, for example. I'm just curious, if you think that they be, should they be treated as the same? Or do you think there are separate tracks that need to be pursued?
CAITLIN LONG: Well, for exchanges in particular, there is really no regulatory regime for them. And again, most of the ones that are actively trying to do right are asking for clarity. They're not trying to evade the law. There are some offshore, of course, that are but most of the onshore ones are not and they do not fit within existing broker-dealer rules.
We saw Chairman Powell testifying at the House Financial Services Committee a few weeks ago, for example, say that one corner of this industry, which is called stablecoins-- stablecoins are US dollar equivalent tokens-- and that they should be either regulated as bank deposits or as money market funds. But the problem is they don't fit within money market funds right now. The Federal Reserve has the ability to fit them within bank rules right now. They don't need Congress to act. It's very interesting that the Federal Reserve has not done so. They're not eating their own cooking, they're not living up to their own words but the SEC I think, does have its hands tied more than the Federal Reserve does on going ahead and saying yes, here's how exchanges should be regulated.
I think both the SEC wants to do that, and the exchanges are expecting it. The problem is it doesn't fit within the existing laws and they need Congress to act and we see what's going on up on Capitol Hill. It doesn't seem like anything's going to happen any time soon.
ZACK GUZMAN: Yeah, in that appeal for powers he kind of laid out also a focus on not just kind of the tokens themselves but now the institution, the crypto platforms that are kind of blending and allowing people to tap equity in their crypto holdings. And we've seen pressure mounted on some of those other protocols too. I mean, when you look at that space, did that catch your eye for something that maybe Gary Gensler would have high on his list of things to talk about and maybe the issues that we've talked about, you and I before, when it comes to those lending platforms not necessarily having any oversight there either?
CAITLIN LONG: Oh, boy, that was the clearest shot fired if you will in Gensler's speech in my view. There was a one-line reference to crypto lending platforms and it didn't go-- it didn't mince words, it said if crypto lending platforms are engaged in securities activities they are running afoul of the law. It's interesting because we have seen enforcement actions by state securities regulators, I think now we're up to five states in the last week or so against one of the crypto lending platforms in the United States. But the SEC itself has not gotten involved, and yet, Gensler had that one line in his speech. It does seem that there's coordination happening among the regulators.
It is worth noting though, one of the things that I think is difficult for folks who haven't been around and don't have the proverbial gray hair to understand, is that the SEC has five years to go after bad actors here. They can take their time, whether you think that's fair or not, that's what the law is. And in the case of the Ripple lawsuit by the SEC, it took them eight years. And the reason that they kept going for three years after the statute of limitations expired is that they had apparently agreed with Ripple to toll the statute of limitations to give themselves extra time.
I actually think they need to act. I don't think those kinds of behaviors are helpful to sue someone eight years later over something that might actually be a valid dispute. The law is not clear in some of these areas. But the SEC, just because they have not acted yet, absolutely does not mean they won't. I think they will. They take their time and they get their ducks in a row first.
ZACK GUZMAN: I think that's a good way to wrap here with the last question, and I guess this might be veering a little bit outside of what we normally ask you about, which is just kind of the price moves just because of what we're seeing Bitcoin and Ether seeing a pop. Of course, that's kind of been settled when we think about how the SEC might look at them as not securities but it's interesting to see the rest of the tokens and the rest of the space still in the green as well. And we know they're kind of linked but if anything, we got from yesterday it would seem that these are-- they shouldn't be linked. And I guess, the question there would be what you make of the moves that we're now seeing and kind of investors maybe putting the weight on what you just said, that maybe they take this to mean, we're in the clear here because the SEC hasn't done anything yet, so maybe it's going to be fine?
CAITLIN LONG: Well, I think some of it is in the price, it's hard to say how much but it is true that Washington DC has been telegraphing a big regulatory crackdown. It actually started on the day that Tether released its reserve asset allocation back in April, which by the way, was the peak in Bitcoin's price. And at the time, I said that's not a coincidence because a lot of the big smart money at the time, you saw analysts telling their investors get to the sidelines, there's a crackdown coming and wait until it happens and then get back in. And indeed, that's kind of what the price action has telegraphed.
But I think more interesting than the price action is the volume, the volume has collapsed as it's clear that certain of the intermediaries in the sector are definitely in the crosshairs and others are more likely to be clear. But again, until that all shakes out, I don't expect the volume to come back. But the price action, a lot of it is a function of scarcity and that has nothing to do with regulators at the end of the day.
AKIKO FUJITA: So many variables to walkthrough here. Caitlin, it's always good to have you break it down for us. Caitlin Long, Avanti Bank and Trust founder and CEO. Thanks so much for joining us today.
