According to a prominent US financial regulator, the cryptocurrency market is “rife with fraud and hucksters and grifters,” the BBC has learned.
The US Securities and Exchange Commission (SEC) chief, Gary Gensler, claims that since cryptocurrency companies are flouting the regulations his organization works to enforce, the “investing public around the globe has lost too much money.”
It happens at a time when the business is trying to sway the results of the US elections in November with millions of dollars in political contributions in the hopes of passing more advantageous laws down the road.
Apart from the contest for president between Donald Trump and Kamala Harris, there are 435 House of Representatives districts and 33 Senate seats that are up for reelection.
One of the most contentious technological issues in the world, the future of cryptocurrencies, seems to be a topic where Donald Trump and the departing Biden administration disagree sharply.
By vowing to establish America as “the crypto capital of the planet” and a “strategic national bitcoin stockpile” akin to the US government’s gold reserves, Trump has been trying to win over cryptocurrency aficionados with his campaign promises.
He announced the opening of a new cryptocurrency company, World Liberty Financial, last week. “I think crypto is one of those things we have to do,” he stated, despite the lack of specifics.
Three years ago, he wrote off Bitcoin as something that “seems like a scam” and a danger to the US currency. This is a significant change in his views.
Trump’s renewed zeal contrasts sharply with the Biden administration, vice president of which is Harris. In recent years, the White House has spearheaded a broad crackdown on cryptocurrency companies.
The founder and CEO of FTX, Sam Bankman-Fried, was sentenced to 25 years in prison in March for fraud after embezzling billions of dollars from clients worldwide, many of whom are still pursuing money recovery.
Then in April, the creator of the world’s biggest crypto exchange, Binance’s Changpeng Zhao, got four months in prison, and the company paid a $4.3bn (£3.2bn) punishment. In an investigation launched by the US Justice Department, he acknowledged to having let terrorists, criminals, and child abusers use his platform to launder money.
In court, the SEC is pursuing a case against Binance. It is one of a record-breaking 46 enforcement actions against companies attempting to make money off of still-emerging technology that the banking regulator took last year.
“This is a field that has come along, and just because they’re recording their crypto assets on a new accounting ledger, they [wrongly] say ‘we don’t think we want to comply with the time-tested laws’,” says Mr Gensler.
He explains that rules that force companies that want to raise money from the public to “share certain information” with them have been in place to protect investors since the SEC was created.
This occurred in 1934, following the historic 1929 Wall Street crisis that signaled the start of the Great Depression.
“While cryptocurrency only makes up a small portion of the US and global capital markets, it has the potential to erode the confidence that regular investors have in these systems,” Mr. Gensler argues.
Although proponents contend that cryptocurrency provides a quick, inexpensive, and safe means of transferring money, a Federal Reserve poll conducted this year revealed that just 7% of Americans were utilizing it, down from 12% in 2021.
Though one of Harris’s advisors stated last month that she would “support policies that ensure that emerging technologies, and that sort of industry, can continue to grow,” Harris has not made many statements regarding cryptocurrency.
Recent talks between her team and sector executives have been trying to develop trust, and given crypto CEOs hope of a brighter future whoever wins in November.
Paul Grewal, chief legal officer of cryptocurrency company Coinbase, said, “I can’t emphasize enough how important this is, not just for the US, but for the world.” He attended these gatherings.
“Not only is the US an important market for crypto, but so much of the important technology surrounding it has been developed here. And I think it’s also critically important that we do not lose sight of the fact that the rest of the world is not simply waiting for the US to get its act together.”
He adds that given how tight the race for the White House is, “every vote is going to count, and crypto votes are no exception”.
This year’s US crackdown on cryptocurrencies has been replicated in Europe. In an effort to lessen the likelihood that criminals will use cryptocurrency, the European Union passed new legislation in April.
Other regulators, though, are acting more slowly. Minimum standards for cryptocurrencies are being developed by the G20 group of major nations; however, adoption of these standards has been sluggish and they are not legally binding.
Back home in the United States, the House has approved a law regulating cryptocurrencies, but the Senate has not. Critics claim that consumers will have less protection as a result.
Mr. Grewal of Coinbase supports the legislation, stating, “This is not an industry that is shying away from regulation.” The industry, he continues, just wants the same criteria to be applied to cryptocurrencies as they are to conventional assets—”no tougher, but no weaker.”
The cryptocurrency industry has recognized an opportunity to support the election of politicians who have a positive outlook on the companies as the US elections in November draw near.
According to analysis by the nonprofit Public Citizen, the industry had already spent an unprecedented $119 million on donations by the end of last month.
The funds are being used “to help elect pro-crypto candidates and attack crypto critics, this is regardless of political affiliation,” said to Rick Claypool, research director of the consumer advocacy organization.
He continues, “They’re trying to discipline the US congress to give in to their demands for less oversight, and to weaken protections for consumers,” which is why they’ve spent more on corporate donations than any other industry.
