Why U.S. Senator Warren Gave SEC Deadline To Clarify Crypto Regulation

U.S. Senator Elizabeth Warren has been a known crypto adversary. She claims Bitcoin and cryptocurrencies have a negative impact on the environment and facilitate cyber-attacks. She has taken a new step that could change this industry.

In a letter to the U.S. Securities and Exchange Commission (SEC) Chairman, Gary Gensler, Warren called for “properly” regulations of crypto exchanges. The Senator claims that these entities operate within “gaps”.

Therefore, U.S. investors and consumers are left to operate in an alleged highly opaque and volatile market. In this country, the interest and demand for cryptocurrencies have been on the rise. In Q1 2021, crypto exchange Coinbase recorded $30 billion in trading volume.

That number has grown ten-fold within a year. In Q1 2021, the exchange recorded $331 billion in trading volume. Thus, creating “unique risk to consumers”, Warred said. The Senator specifically expressed concerns about the classification of cryptocurrencies.

Bitcoin is one of the few granted the “Commodity” classification by U.S. regulators. Other digital assets and tokens havent been given the same or any classification. This has been a problem highlighted by developers, investors, and other entities. U.S. authorities have been unable to provide a clear answer.

Warren and Gensler believe that regulators in the U.S. offer no protection against potential fraud or market manipulation in the crypto industry. Warren added:

(…) these platforms are generally subject to state-level regulations for money transfer or payment services.8These regulations were not initially designed to provide oversight for sophisticated, exchange-like operations and are insufficient to ensure a safe cryptocurrency marketplace.

Crypto And Bitcoin Used As Bait By Crypto Exchanges？

Warren goes beyond and claims that the data she uses could be fake as the result of “lack of regulations” market manipulation. She claimed that as much as 95% of crypto-related data is fake and used with the purpose of attracting new users.

When it comes to the price of Bitcoin and other cryptocurrencies, Warren said that “half” of it was subject to manipulation in its past bullish cycle, back in 2017. This is usually conducted, the Senator said, by large investors also known as whales.

Moreover, Warren raised questions regarding the way crypto exchanges store their client‘s funds by potentially “mingle” it with those of other clients. This practice wouldn’t be allowed in a traditional exchange.

(…) cryptocurrency exchanges lack the same type of regulation as traditional securities exchanges, they can also engage in practices like proprietary trading and wash trading to take advantage of their customers without sufficient disclosures.

Thus, Warren demanded Gensler provide a response to 5 key questions. The SEC Chair must reply by July 28, 2021, if crypto exchanges operate with fairness, how cryptocurrencies and digital assets are different from traditional assets, how the SEC can regulate entities such as Coinbase.

In addition, Gensler must talk about the “extent” of the SEC‘s cooperation with international institutions. In the SEC versus Ripple Labs case for the alleged sale of an unregistered security, the regulator asked for the cooperation of these international institutions. So, Gensler’s replied to this question could be key.

Finally, Warren demanded the SEC Chair to provided clarity on DeFi protocols. Many crypto lawyers have been expressing concerns about potential regulations to this sector. The Senator asked Gensler to said if DeFi platforms are illegal under U.S. law, what are the challenge to regulate them, and if DEX requires extra “consumer protection”.

In response to Warrens request to the SEC Chairman, legal expert Gabriel Shapiro said: “Not great”. Whatever Gensler replies, it could have the potential to completely change the status quo on one of the foundations of the industry, crypto exchanges, and DeFi.