SILVER SPRING, Md. -- The chairman of the Securities and Exchange Commission said that investors need more protection in the cryptocurrency market, which he said is "rife with fraud, scams and abuse."
Gary Gensler, appointed by President Joe Biden to lead the body that regulates securities markets, listed several areas where crypto needed to be reigned in or regulated, particularly with regard to money laundering, sanctions, tax collection and extortion using ransomware.
"Right now, we just don't have enough investor protection in crypto," Gensler said in remarks to the Aspen Institute's forum on security, "Frankly, at this time, it's more like the Wild West."
Digital currencies, like Bitcoin, have been left largely unregulated by major governments up to this point. In June, China ordered cryptocurrency mining operations shut down and banks started refusing to help customers with Bitcoin transactions. Although the SEC has brought and won dozens of cases against fraudsters, Gensler said, the agency needs more authority from Congress -- and more resources -- to regulate the crypto markets.
Gensler has been viewed as receptive toward cryptocurrency and other new financial technologies after a stint as a professor at the Massachusetts Institute of Technology, where he focused his research and teaching on public policy as well as digital currencies and blockchain, the global running ledgers of digital currency transactions.
Beyond the problems, Gensler said innovation in digital currencies "has been and could continue to be a catalyst for change in the fields of finance and money."
A Goldman Sachs employee for 20 years, Gensler surprised many with his toughness as a regulator at the Commodity Futures Trading Commission during the President Barack Obama administration.
Gensler opened his remarks by saying he was not speaking on behalf of the SEC or its staff, but that he personally believes that regulation of cryptocurrencies would fall under his agency's purview.
Currencies such as the dollar or euro fulfill several key functions, Gensler said; they are a store of value, a unit of account and medium of exchange. By contrast, Bitcoin and other cryptocurrencies are for now mostly "highly speculative" investments.
When Congress defined what a security was in the 1930s, Gensler said, one of those definitions was as an investment contract -- when "a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party."
That definition, which Gensler says should apply to cryptocurrency, has been tested and reaffirmed by the Supreme Court. Gensler noted that his predecessor at the SEC, Jay Clayton, testified in 2018 that he believed initial coin offerings were securities and that "we have jurisdiction, and our federal securities laws apply."
Gensler said many crypto tokens are unregistered securities and don't come with market oversight or proper disclosures to educate investors. That leaves prices open to manipulation and investors unprotected, he said.
"These products are subject to the securities laws and must work within our securities regime," Gensler said. "If we don't address these issues, I worry a lot of people will be hurt."
The combined market capitalization of all cryptocurrencies is currently more than $1.5 trillion.
Tuesday's event marked the first time the nonprofit Aspen Institute included a discussion about cryptocurrency in the forum on national security.