Crypto Is Not Under Attack, SEC Chair Denies Operation “Choke Point”

U.S. authorities are cracking down on the crypto industry and seem ready to introduce stricter regulations against the nascent sector. Many predicted and feared what now seems to be materializing. The recent bankruptcy filings and turmoil in the industry triggered this response.

In an interview with CNBC’s Squawk Box, Gary Gensler, Chairman of the Securities And Exchange Commission (SEC), denied an ongoing attempt to crack down on crypto. The Commission settled a $30 million deal with crypto exchange Kraken yesterday.

The company has ended its offering of stake service as the SEC considered this product an “illegal” sale of a security. This settlement is just one of the many events hinting at stricter regulations for the nascent industry in the United States.

Crypto Running Out Of Regulatory Time?

Addressing this perception, Gensler stated that the SEC is using “all available tools,” including speaking with market participants, to ask them to comply with regulations. The SEC Chair emphasized that a high number of tokens must come under their oversight by registering with the regulator.

Gensler referred to specific trading venues as “Casinos,” reiterating his view that the nascent industry is operating as the “Wild Wild West,” supported by a business model “rife with conflict.” The SEC Chair believes that the regulator has attempted to approach and engage with the nascent industry.

In that sense, Gensler called out crypto companies to embrace “time-tested” regulations that protect consumers. The SEC Chair said:

The path forward is well-trotted; whether it is large companies you follow every day, Apple or other tech companies, or the automobile industry (…), they know how to be compliant. We have ten of thousands of registrants that properly and in good faith registered and made the proper disclosures. It’s time for this group (crypto) to do so; the runway is running awfully short (…).

Moreover, the SEC Chair claims that their recent decisions, their approach to regulation by enforcement, and with rules is “not something new.” Gensler claims the SEC will not hesitate to continue operating under this scheme against companies like Kraken and others.

“Companies like Kraken can offer investment contracts but they have to have full, fair and truthful disclosure,” says SEC Chair @GaryGensler on the settlement with #crypto exchange @krakenfx. “That’s our basic bargain. They were not complying with that basic law.” pic.twitter.com/DisYr4gQKg

— Squawk Box (@SquawkCNBC) February 10, 2023 

Crypto Companies Face Onslaught From Regulators

Nic Carter, the founder of Castle Island Ventures, shared a different view on the current state of crypto regulations in the United States. Carter believes the Joe Biden administration is implementing “Operation Choke Point” on the nascent industry.

This operation was allegedly created under the Barack Obama administration to isolate specific industries from the U.S. banking sector. In that sense, U.S. regulators are “using the banking sector to organize a sophisticated, widespread crackdown against the crypto industry,” Carter claims:

(…) banks taking deposits from crypto clients, issuing stablecoins, engaging in crypto custody, or seeking to hold crypto as principal have faced nothing short of an onslaught from regulators in recent weeks.

Carter argues that the collapse of the crypto exchange FTX triggered this operation. This company’s failure gave the U.S. government a “silver bullet” against the nascent industry.

“Choke Point” could have the opposite effect in the U.S. by not isolating the industry but the country from technology and products experiencing high adoption. Thus, customers gain exposure in other jurisdictions that could, instead of protecting them as Gensler promised, make them vulnerable to another FTX-like fiasco. Carter wrote:

f bank regulators continue their pressure campaign, they risk not only losing control of the crypto industry, but ironically increasing risk, by pushing activity to less sophisticated jurisdictions, less able to manage genuine risks that may emerge.