(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

 

WASHINGTON - For cryptocurrency backers, hoping for regulation might sound like turkeys voting for Thanksgiving. But plans by chief securities watchdog Gary Gensler to bring the $2.8 trillion industry under an investor protection framework could give digital assets a long-term boost. That’s why Gensler’s overly long to-do list – one that keeps getting longer – is a risk for crypto, not an opportunity.

Gensler is already eyeing potential regulatory targets ranging from special purpose acquisition companies to the way online brokerages like Robinhood get paid, as well as taking up the Securities and Exchanges Commission’s decades-long fight over whether Chinese companies should be listed in the United States. On Wednesday the SEC chair added hedge fund fees to this list of bugbears.

Crypto could fall through the cracks – but shouldn’t. The market for digital assets like bitcoin, non-fungible tokens and so-called stablecoins like Tether is stacked with risks investors may not fully grasp, like the theft of funds and currency volatility. Companies like trading platform Coinbase Global COIN.O have publicly resisted  oversight; the industry is building its D.C. lobbying effort.

Overseeing crypto brings multiple challenges, such as regulatory turf wars. Gensler says many crypto investments are securities. But his former employer the Commodity Futures Trading Commission seems to think Tether, at least, is a commodity. It recently fined the dollar-backed stablecoin $41 million. Agencies like the SEC may need Congressional support, too, to oversee crypto exchanges, which will only come if politicians can agree.

Meanwhile, as the industry grows, so do problems. In a six-month period through March 2021, about 7,000 people lost more than $80 million in crypto scams, according to the Federal Trade Commission. Last month, Coinbase said thieves had stolen from at least 6,000 customers. The SEC could help with calls for better disclosure, capital rules or provisions for making hacked customers whole.

Gensler has limited resources to tackle these issues. The number of full-time SEC employees is down 4% from its peak in 2017. But for crypto providers, the benefit of SEC guardrails is significant. In a University of Chicago survey in June, nearly two-thirds of respondents  who hadn’t bought digital assets said it was because they don’t understand them enough. Clearer rules would be a draw, not a dampener.

 

CONTEXT NEWS

- U.S. Securities and Exchange Commission Chair Gary Gensler said on Nov. 2 that many cryptocurrencies will fail, comparing investment in digital assets to the risky venture capital industry.

- Gensler was addressing a conference held by the Securities Industry and Financial Markets Association. He added that his agency hopes to bring digital assets into the SEC’s investor protection framework.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by John Foley and Sharon Lam) ((For previous columns by the author, Reuters customers can click on CHON/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | gina.chon@thomsonreuters.com; Reuters Messaging: gina.chon.thomsonreuters.com@reuters.net))