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April 27, 2023

Crypto Regulation

Below is the Introduction to the Fact Sheet. Read the full Fact Sheet here

The threat of harm to investors and markets is huge.  The cryptocurrency market has exploded and imploded dramatically over just the past few years, costing investors trillions of dollars in losses.  Many of those victims are individual retail investors swept up in the hype.  Making sure that these financial products are properly regulated is critical.

Securities regulation is the first line of defense.  As SEC Chairman Gensler has repeatedly said, the “vast majority” of cryptocurrency offerings are securities.  Yet few of the issuers and promoters are complying with the securities laws like every other law-abiding financial firm in the U.S.  The solution is first and foremost to aggressively enforce all of the available laws and regulations that apply to securities even if they are in the crypto space, including the registration requirements and the antifraud provisions set forth in the securities laws.  And the SEC should be adequately funded to do the job.  This is essential for protecting investors and the overall stability and integrity of our securities markets. In fact, the US global leadership in the capital markets depends on this strong regulatory framework and those investor protections.  Claims that compliance with the securities laws is too difficult or even impossible, now heard from some in the cryptocurrency industry, are simply unfounded. Moreover, yielding to those claims would create an unlevel playing field and unfairly advantage crypto over all other law-abiding firms.

The CFTC also has a role to play in crypto derivatives regulation, as well as basic antifraud authority over commodities.  The CFTC has full regulatory authority over crypto-based derivatives, including futures, options, and swaps.  To the extent a cryptocurrency is considered a “commodity” under the Commodity Exchange Act, the CFTC also has authority to police that market for fraud and manipulation.

Any regulatory gaps are narrow and do not justify an overhaul of the regulatory framework.  To the extent there are any gaps in the regulatory and enforcement tools applicable to cryptocurrencies, they are narrow, and they do not warrant an overhaul of the current system of financial regulation or special carve-outs from the current framework.  Above all, it would be a mistake to deprive the SEC of securities jurisdiction over cryptocurrency offerings or weaken its authority, or to transfer that authority to an agency such as the CFTC.  Other policy solutions to the challenge of cryptocurrency regulation that have surfaced are also unwise and unwarranted because they would dangerously legitimize a risky and largely lawless sector without providing genuine safeguards that would protect investors and markets.

Fact Sheets


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