SEC chair Gensler worries more investors will be hurt in cryptocurrency markets

After this month sabottling the stable coin, TerraUSD, Securities and Exchange Commission Chairman Gary Gensler said he worries more investors will be harmed in criptocurrency markets.

Gensler told reporters after a House Appropriations Committee panel hearing on Wednesday that he thinks a lot of these tokens will fail. I fear that there are going to be a lot of people hurt in the criptocurrency, and that will undermine some of the confidence in markets and trust in markets writ large. The turmoil has caused unease in some corners about the possibility of a contagion to other asset classes. Rostin Behnam, chairman of the Commodity Futures Trading Commission, said Monday that there could be a knock-on effect on traditional assets and traditional markets if prices fall sharply.

Gensler said Wednesday that exposure to crypto in SEC-registered asset managers isn't significant but that the agency has less visibility into private funds and particularly family offices. In January of this year, the SEC proposed a rule that would increase the amount and timeliness of confidential information that private equity and hedge funds provide it through a document known as Form PF.

The evangelist Mike Novogratz said in a letter to shareholders that his firm, Galaxy Digital Holdings Ltd., invested in Luna in late 2020. While he didn't say how much the firm lost or gained on the investment, Galaxy reported earlier this month that sales of Luna were the biggest contributors to its $355 million in net realized gains on digital assets during the first quarter.

The SEC said earlier this month it plans to add 20 investigators and litigators to its unit dedicated to cryptocurrencies and cybersecurity enforcement, nearly double the size of the unit. In Wednesday's hearing on the SEC's budget, Gensler said he wished the agency had more.

He said that we were really outpersonned.

Both Jay Clayton and his predecessor, Gensler, have said that cryptocurrencies are likely to meet the legal definition of a security that should be registered with the SEC. No major criptocurrency issuer or trading platform has opted in to the commission's oversight.

A hallmark of Gensler's tenure has been trying to persuade trading platforms such as Coinbase Global Inc. to be regulated as exchanges, saying that many of the assets they list are securities. The platforms deny this, and many lawyers say it isn't clear how an SEC-registered exchange could allow trading in securities that haven't been registered with the commission.

Gensler said the agency can use its authority to create exemptions where necessary.

There is a path forward that we are talking about with these exchanges about to do: to get the platforms registered and have a pathway for the token as well, he said. They should move towards getting registered or, you know, we're going to be the cop on the beat, and we're going to bring the enforcement actions.