Gary Gensler questions crypto exchanges’ degree of decentralization

Securities and Exchange Commission (SEC) chairman Gary Gensler has called out the crypto industry again, this time taking aim at the exchanges. 

Gensler’s comments were made during the Securities Industry and Financial Markets Association’s (SIFMA) annual meeting.

Centralization among crypto exchanges

The commissioner pointed out the “significant concentration” among exchanges in the middle of the crypto market. “Though technological innovations repeatedly disrupt incumbent business models, centralization still tends to reemerge.” he said while referring to blockchain technology. 

Gary Gensler called out the crypto exchanges, or as he describes them, intermediaries, for being in a centralized position and pocketing disproportionate profits, while riding on the back of crypto, an asset with decentralization at its core. 

Using the analogy of an hourglass, the SEC chair compared crypto exchanges and intermediaries to the neck of the hourglass where they collect “a few grains in each transaction” which adds up to a huge amount in the absence of robust market competition thanks to the alleged centralization. 

SEC’s crypto crackdown prompts more investment

A survey conducted by MLIV Pulse from Bloomberg suggests that Gary Gensler’s regulatory campaign against the crypto industry may not be all bad. 

More than half of the respondents believe that legal and enforcement action surrounding the crypto industry is actually a positive sign for this asset class. 

65% of the retail investors who participated in the survey said that the increased attempts to regulate crypto have made them more likely to invest in the asset class. 56% of the professional investors had a similar opinion. 

Classification of crypto assets

Gary Gensler has been pushing for the classification of crypto assets that he feels are not sufficiently decentralized, as securities in order to regulate any related entities effectively, be it the issuer or the exchange they’re traded at. 

From the SEC’s perspective, the classification of crypto assets is an easier way to regulate the industry as a whole as it eliminates the need to regulate individual issuers, companies, and exchanges. 

Such classification will prompt the intermediaries to act in a manner that is in line with the status of their crypto offerings.