SEC Signals Greater Regulation of Crypto “Casinos”

2009 CFTC Energy Hearing, then-Chairman Gary Gensler. Photo courtesy of CFTC.

After the catastrophic collapse of the world’s second largest cryptocurrency exchange, FTX, the SEC’s Chairman, Gary Gensler, has signaled that his commission will be taking a harder line on cryptocurrency exchanges, tokens, hedge funds, and broker-dealers. Gensler made the comments about cryptocurrencies in an interview with Yahoo! Finance. When interviewer Jennifer Schonberger asked Gensler why the SEC didn’t enforce the rules on the books regarding the collapse of FTX, Gensler responded:

We are enforcing. The Securities and Exchange Commission, I couldn’t be prouder. And it started under my predecessor, Jay Clayton, has brought over 100 enforcement cases in this space. And what we’ve said to what is largely a non-compliant field– there’s about 10,000 of these crypto tokens. And then there is not just dozens, but maybe hundreds of service providers, broker-dealers. They might call themselves exchanges. Some might call themselves other things. You might think of them as the casinos, where in the investing public is looking for a better future. And because most of these tokens are securities, that means that the storefronts, if you wish, or the casinos, need to come into compliance with our time-tested laws.

And what that means is basically, not using customer funds, as many of them do. Their business model right now is offering the public, they say, they’re purporting to offer them an interest return in crypto, 4%, 8%, 12%, sometimes 15% or even 20% returns, and then possibly trading against their customers, trading ahead of their customers, lending that out. Anywhere else in finance, these conflicts are not allowed. And they’re separated out. So we have publicly been saying to these crypto intermediaries– they might call themselves crypto lending. They may call them crypto exchanges. These crypto intermediaries, in essence, the casinos, if I might say it again, to come into compliance with the law.

We’ve brought a number of actions. Crypto exchange, Poloniex, last year in September of 2021, when a large exchange Coinbase wanted to get into the crypto lending space, we said that would not be compliant with the laws the way they were set up. We brought actions against crypto lending platforms, including BlockFi. And we will continue to be a vigorous securities regulator. But I really do suggest to these intermediaries, these storefronts, these casinos, if you wish, to come into compliance, work with the SEC to get into compliance, disaggregate these businesses.

Later in the interview, Gensler called on cryptocurrency exchanges to register and to come into compliance. He described them as casinos, saying, “You might think of them as the casinos, where in the investing public is looking for a better future. And because most of these tokens are securities, that means that the storefronts, if you wish, or the casinos, need to come into compliance with our time-tested laws.”

Action Line: During the interview, Gensler called crypto exchanges “casinos” again and again, emphasizing the point that they need to come into compliance. Casinos are purely speculative, and if you plan on seeing your assets again, should be avoided. Instead, focus your investing efforts on patience and compounding. If you need help building a portfolio with those ideas in mind, let’s talk. Before our conversation, get to know me better by subscribing to my free Survive & Thrive letter by clicking here.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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