Gary Gensler’s Vision for Regulating Crypto Brokers 

Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), wants crypto brokers to have a regulatory framework that balances investor protection and innovation. Gensler says that a clear set of guidelines, increased transparency, and robust market oversight are key to preventing fraud and ensuring market integrity.

With his vision, investors can confidently participate in the crypto market. In this rapidly evolving industry, he also mitigates risks.

Gensler’s Crypto Regulation Vision Questioned after Prometheum’s Testimony

Gary Gensler’s vision was presented to the House by Prometheum, a trading platform registered with the Securities and Exchange Commission. Legislators are skeptical, though, because the platform doesn’t have significant assets like Bitcoin.

The critics questioned Gensler’s vision, raising concerns about its limited coverage and possible impact on crypto in general.

The House Financial Services Committee held a hearing on June 14, where experts and insiders shared their thoughts on regulating digital assets. Two draft bills about crypto market structure and stablecoin regulation were discussed.

The ongoing lawsuit between the SEC and Coinbase, a U.S. crypto exchange, cast a shadow over the proceedings. The committee aimed to find the best way to regulate these markets in a world of evolving challenges and legal battles.

Last but not least was Aaron Kaplan, co-founder and CEO of Prometheum. There are FINRA and SEC regulations for companies like Prometheum. The company is an alternative trading system, a broker-dealer specializing in digital assets. Prometheum plans to launch its service in the third quarter.

According to Kaplan, existing securities laws sufficiently regulate crypto markets (unlike most other witnesses). Lawmakers held up Kaplan’s platform as proof that Gensler was sincere when he invited exchanges to register.

Skeptics, however, saw Kaplan’s testimony as a portrayal of the SEC as a typical example of harmful bureaucracy. In their view, the testimony reinforced the notion that the SEC’s regulatory approach is burdensome and obstructive rather than serving the industry’s best interests.

Prometheum Reveals SEC’s Catch-22 Mindset in Crypto Market Structure

The term “Catch 22” was popularized by novelist Joseph Heller. During World War II, the U.S. government created Catch 22 to prevent soldiers from leaving the military. Soldiers could only be discharged if they were mentally unfit. In contrast, if they wanted to leave, it meant they were sane.

The SEC seems to have employed a similar mindset when envisioning its desired crypto market structure. It makes sense that a regulated crypto exchange shouldn’t facilitate actual crypto buying or selling even though you can.

Flood (R-NE) emphasized a crucial point by asking Kaplan two straightforward questions: Does Prometheum allow users to buy and sell ether (ETH)? What about bitcoin (BTC)?

Kaplan answered each question with a brief, somewhat embarrassed “No.”

At the moment, Prometheum hasn’t decided what assets it’ll offer. Despite their website showing tokens connected to Flow, Filecoin, The Graph, Compound, and Celo, these examples seem more hypothetical than confirmed.

Blockchain tokens can’t be officially registered as securities yet. So Prometheum could become a registered digital asset marketplace that doesn’t sell anything. Prometheum will also cater to accredited investors, not the general public.

According to Flood, Prometheum’s shortcomings, especially its extremely limited offerings, show the hollowness of the SEC’s claims that the existing law allows crypto exchanges to register. According to Flood, Prometheum’s registration, does not address the core issue: There is no consistent definition of digital asset security within current law.

Crypto exchanges are stuck in a Catch-22 situation because they can’t offer popular and significant digital assets if they want to get registered.

Ethereum’s native token, ether, exemplifies this dilemma. While bitcoin has been regulated as a commodity, many crypto assets don’t have a clear “issuer” or entity to register them. Dogecoin and Monero are examples of decentralized and community-driven protocols.

Prometheum highlighted another critical flaw during the hearing in the SEC’s strategy. Prometheum only serves accredited investors, so it doesn’t make crypto assets accessible to everyone.

This discrepancy, says Coy Garrison, former counsel to SEC Commissioner Hester Peirce, shows the SEC’s inconsistent market structure.

People purchase [digital assets] for a number of reasons,” Garrison said, “but one is to use them on the network … The application of securities laws [to these assets] would be so burdensome as to render the operation of the network moot

Prometheum can sell large quantities of tokens to institutions and wealthy people. However, if the assets can’t be accessible to regular users, the tokens will be worthless because no one will use them.

“If you have to go through a broker-dealer to [buy crypto assets], it adds a tremendous amount of friction to the system,” Kristin Smith, CEO of the Blockchain Association, told me.  SEC’s actions “ignores that these tokens have a function.”