Crypto Markets’ Short Supply Of Safeguards At The Heart Of SEC Chairman’s Advice To Buying Investors

SEC Chairman Advises Investors To Consider Lack Of “Safeguards” Before Buying Crypto

Is investing in cryptocurrencies riskier than investing in other assets? The Chairman of the SEC certainly thinks so. In a recent statement, SEC Chairman Jay Clayton advised investors to consider the lack of safeguards buying they buy crypto.

Clayton, who has been outspoken about the dangers of crypto in the past, made the comments during an interview with the New York Times this past week.

During the interview, Clayton claimed that the SEC has been working hard to educate investors about the risks of participating in an emerging and unpredictable market like crypto. Yes, some investors are making lots of money by investing in crypto, but it’s an investing field that comes with considerable risks. Here’s how Clayton described the dangers of crypto investing:

“We tried to get the word out that although the trading looks like the trading you would see on Nasdaq or on the New York Stock Exchange, these markets do not have the same kinds of safeguards for you. We’ve worked for… seventy years to try to prevent manipulation in those traditional markets, to try and prevent people taking advantage of the small player.”

Clayton also admitted that the SEC was limited in protecting investors from offshore token sales. Clayton claims his agency has “tried to make it clear” that investors who purchase investors in overseas token sales have limited protection. If something goes wrong with these token sales, or if the sale turns out to be a scam, then “there’s very little we [the SEC] can do to get it back as a practical matter.”

To date, regulatory organizations like the SEC have struggled to regulate crypto.

The problem, according to Clayton, comes from the fundamental nature of cryptocurrencies. By nature, these cryptocurrencies are governed by a decentralized system. Regulatory organizations have limited experience – if any experience – dealing with decentralized systems.

The cornerstone of a blockchain-based ecosystem is that it has “no real arbiter”, explains Clayton. This principle is at odds with conventional understandings of regulation.

With that in mind, cryptocurrencies might be fundamentally unable to be regulated in their current form. That means cryptocurrencies might have to fundamentally change for them to ever be regulated.

The New York Times interviewer who interviewed Clayton, Andrew Ross Sorkin, echoed these comments in a follow-up interview on CNBC.

Sorkin claimed that he expected the “next inflection point” for crypto to come in the form of some “positive regulation” from government regulators. However, now he believes that, based on SEC Chairman Jay Clayton’s arguments, “crypto would have to change its technology to work with the law.”

Sorkin also described the SEC’s hardline stance against cryptocurrencies it sees as “non-compliant” – a term for any tokens not registered with the agency that are acting as securities.

Despite the pessimistic stance from Clayton and Sorkin, Clayton has previously indicated that the SEC is unlikely to declare bitcoin and similar cryptocurrencies as security tokens. Bitcoin and certain other cryptocurrencies are described as “replacements for sovereign currencies” and should not be considered securities in their current form.

Clayton has not made such a statement about cryptocurrencies like Ethereum, however, and other cryptocurrencies.

Are cryptocurrencies unregulatable in their current form? Or is the SEC just delaying before inevitably developing effective regulations for cryptocurrencies?