SEC chief: Crypto exchanges need a regulator for market manipulation

SEC chief Gary Gensler said the US should consider regulating crypto exchanges to reduce market manipulation and fraud. Everything else is protected, but Bitcoin isn't, as shown by the BTC outside the jar in this image.

US Securities and Exchange Commission (SEC) chair Gary Gensler urged Congress to consider regulating crypto exchanges during his first appearance before the House Financial Services Committee (HFSC) last week.

Gensler — appointed SEC head honcho in April — told HFSC member Patrick McHenry the $2 trillion cryptocurrency market could benefit from more investor protection.

Right now, crypto exchanges exist without a market regulator, “and thus there’s no protection against fraud or manipulation,” explained Gensler.

“That could instil greater confidence,” said Gensler, who served as CFTC chairman under Barack Obama from 2009 until 2014.

Gensler mostly addressed the GameStop saga in this virtual hearing. The video is timestamped to his comments on regulating crypto markets.

Indeed, crypto exchanges in the US aren’t working to a regulatory framework given by the SEC or its sister agency, the Commodity Futures Trading Commission (CFTC). 

Gensler didn’t really specify what a crypto exchange framework would look like. But he did note the SEC was looking to provide clarity on how platforms should handle crypto custody.

“It’s only Congress that can really address it,” said Gensler. “It’d be good to consider whether to bring investor protection to the crypto exchanges.”

Digital Assets and Exchange Commission to regulate crypto?

Gensler’s comments, particularly on potential crypto exchange fraud and manipulation, could be more telling than they first appear.

Bitcoin investors have long thirsted for the institutional crowd to fully adopt cryptocurrency. Many hope that Exchange Traded Funds (ETFs) could be bait.

  • The SEC is yet to approve a single Bitcoin ETF despite dozens of applications from crypto-native funds and Wall Street over the years.
  • Most recently, the agency delayed its decision on VanEck’s Bitcoin ETF proposal — originally due in April — until June.
  • Meanwhile, Canada has three Bitcoin ETFs (they’re outperforming Grayscale), as well as a raft of Ethereum funds.

Regulators have historically maintained that crypto markets are too susceptible to fraud and manipulation to expose equity markets to digital assets like Bitcoin.

Grayscale’s Barry Silbert has a question for Gensler: Will you approve my ETF?

[Read more: Digital Currency Group has another $500M for Grayscale Bitcoin discount]

So, Gensler’s comments could foreshadow an uncomfortable reality for the industry: Bitcoin ETFs might only arrive in the US once crypto gets its own market regulator — whenever that may be.

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