United States Senator, Elizabeth Warren, who chairs the Senate Banking Committee’s Subcommittee on Economic Policy, has warned of the growing risks of cryptocurrency trading.
On Thursday, she attacked the U.S Securities and Exchange Commission (SEC) for the lack of crypto regulatory oversight.
“While demand for cryptocurrencies and the use of cryptocurrency exchanges have sky-rocketed, the lack of common-sense regulations has left ordinary investors at the mercy of manipulators and fraudsters. These regulatory gaps endanger consumers and investors and undermine the safety of our financial markets. The SEC must use its full authority to address these risks, and Congress must also step up to close these regulatory gaps,” Senator Warren stated.
The Senator had sent a letter to SEC Chairman Gary Gensler on Wednesday, sharing concerns about the risks in the cryptocurrency market. She emphasized that cryptocurrency trading platforms lacked the same basic protections as traditional exchanges. The senator cited Federal Trade Commission (FTC) data showing that nearly 7,000 people reported a combined $80 million in losses from cryptocurrency scams in the six months to March 2021.
The senator also made mention of cryptocurrency-based data, suggesting that they could be fake. She claimed that as much as 95% of crypto-related data is fake and used to attract new users.
Elizabeth Warren raised questions regarding the way cryptocurrency exchanges store their client’s funds by potentially “mingling” them with those of other clients. She stated that this practice wouldn’t be allowed in a traditional exchange, stating, “cryptocurrency exchanges lack the same type of regulation as traditional securities exchanges, they can also engage in practices like proprietary trading and wash trading to take advantage of their customers without sufficient disclosures.”
The Senator demanded Gary Gensler to respond to 5 key questions by July 28, 2021. They are:
- If crypto exchanges operate with fairness.
- How cryptocurrencies and digital assets are different from traditional assets.
- How the SEC can regulate entities such as Coinbase.
- The “extent” of the SEC’s cooperation with international institutions.
- Clarity on DeFi protocols.
What this means
U.S. Senator, Elizabeth Warren has been a known crypto adversary. She has stated in the past that Bitcoin and cryptocurrencies harm the environment and facilitate cyber-attacks. Although many in the cryptocurrency community believe regulation of cryptocurrencies is bad for the market, others believe it is practically impossible to regulate cryptocurrency, especially with the existence of Peer-to-Peer (P2P) trading and decentralized exchanges.
Investors are however advised to brace up for a possible downturn in the market as news of regulation tends to strike FUD (Fear, Uncertainty and Doubt), thereby causing market selloffs. This was the case when the cryptocurrency market crashed by almost 50% in May 2021.