John Reed Stark, a former U.S. Securities and Exchange Commission (SEC) official, has warned that the financial regulator’s crackdown on cryptocurrency will never end.
The crackdown aligns with the SEC’s three-part mission — protecting investors, maintaining fair markets and facilitating capital formation.
In a lengthy post on X — formerly Twitter — on Saturday, Stark discussed the recent legal action by the SEC against cryptocurrency exchange Bittrex. He noted that the charges against Bittrex are similar to those against other crypto exchanges, including Coinbase and Binance.
Stark argued that by calling themselves “exchanges,” “brokers” and “market-makers,” crypto trading platforms like Bittrex and Binance are using misleading language to imply that they are regulated and trustworthy. It can quickly turn into a “dangerous” marketing strategy.
Stark said the SEC regulatory crackdown is necessary because these crypto exchanges are unregistered.
“One reason for the SEC registrant of crypto trading platforms is to manage the litany of conflicts of interests which can arise when acting as a securities trading intermediary,” wrote Stark.
These crypto platforms often provide the same functions as traditional exchanges, such as buying and selling assets, but they do not register with the SEC. It allows them to operate without regulatory oversight, which can pose risks for investors and the broader financial system. As a result, the SEC resorted to filing lawsuits against these platforms to hold them accountable.
Stark also pointed out that these platforms are “playing regulatory arbitrage,” a strategy of exploiting differences in regulations between jurisdictions to gain an unfair advantage.
The John Reed Stark Consulting president argued that these platforms operate with a short-term mindset, focused on making as much money as possible before they are forced to comply with stricter regulations.
“Don’t be fooled. Beneath their sophisticated exterior, these crypto trading platforms are masquerading a spectacularly mammoth (and effective) affinity fraud that is as old as finance itself,” said Stark.
The classification of crypto, whether a security, a commodity, a currency or something else, remains a hotly debated topic in the U.S.
If cryptocurrency is a commodity, just like crude oil, coffee or natural gas, its primary regulator would be the Commodity Futures Trading Commission (CFTC). However, if experts and regulators considered cryptocurrencies as securities like stocks, bonds and exchange-traded funds, the SEC would be the main regulatory body.
SEC Chairman Gary Gensler has said that all crypto tokens, except Bitcoin, are securities based on the Howey Test. A recent court ruling, however, contradicted Gensler’s statement, finding that Ripple’s native token XRP is not a security.
In the EU, digital assets are put under a new class through its MiCA (Markets in Crypto Assets) framework. In contrast, traditional U.S. financial institutions box digital assets into existing regulatory structures such as securities or commodities.
Analysts noted that the attitude of U.S. regulatory bodies toward crypto assets could have significant repercussions for the future.
Many are considering moving to countries with more favorable regulations, such as the EU, Gibraltar, the UAE and Switzerland. At the same time, experts say crypto exchanges must be regulated for investor safety, especially in light of the recent wave of defunct crypto projects.
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