The calendar may indicate that summer is in the Northern Hemisphere, but it's winter in the crypto world.
Many investors have been surprised by the rapid decline in the cryptocurrency market, while increasing calls for regulation.
During an interview on Squawk on the Street, Gary Gensler, the chairman of the Securities and Exchange Commission, discussed his thoughts about cryptocurrency with CNBC's Jim Cramer.
'Key Attributes of a Security'
"Many of these financial assets, crypto assets, have the fundamental characteristics of a security... some like bitcoin, and that's the only one, Jim, I'll say because I'm not going to talk about any of these tokens, my predecessors and others have said they're a commodity."
"There's a lot of work to be done to really protect the investing public and many of these tokens right now or trying to operate there are potentially non-compliant," he said.
Gensler told the Financial Times that he wants "one rulebook on the exchange that protects all trading regardless of the pair," e.g., a security token versus security token, a commodity token versus a security token, and a commodity token versus commodity token."
The notion of a "one rule book" is meant to avoid any slippage through the regulatory cracks, according to David Lesperance, the CEO of Lesperance & Associates. The Securities and Exchange Commission (CFTC) regulate the crypto environment.
The 'Legislative Turf War'
Lesperance noted that the CFTC is picking up political momentum to regulate cryptocurrency markets directly under a bipartisan bill called the Responsible Financial Innovation Act, sponsored by Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.).
The measure would also transfer authority to the CFTC, which would ensure that cryptocurrencies are treated as commodities rather than securities.
The crypto industry would need to support the CFTC in order to regulate the sector and take on a myriad of new responsibilities related to virtual assets.
"The legislative turf war is on, and given the swirling around the crypto world around stable coins, DeFi, and NFT, there is little doubt that a winner will soon be declared," said Lesperance.
On social media, the idea of a one-rule book rule was underwhelming.
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"He wants to talk regulation when they're forcing his hand!" one person replied. "You can't put it off any longer and suppress the price of bitcoin?? i applaud senators gillibrand and lummis for finally getting the ball rolling!"
Commodities are classified as commodities.
"Ramming cryptocurrencies into a regulatory framework created for fiat currencies hurts investors," said another commenter. Everything we know about money has changed as a result of the crypto revolution. It's time to think about other options, such as ending income taxes, the Federal Reserve, and other legacy banking regulations.
Frank Corva, a Finder'ssenior analystfor crypto and blockchain, believes Gensler's desire for one rulebook for digital assets isnt realistic.
"He's already stated that digital assets like bitcoin and ether should be classified as commodities," he said. "Given that BTC and ETH account for over 55% of the entire market cap of cryptocurrency, this would mean that the CFTC should be the agency to handle regulatory tasks."
Despite Corva's assertion, not all digital assets fulfill the same purpose as bitcoin and ether, and "therefore, not all digital assets should be regulated like these two assets."
Gensler wants a voice in how oversight is handled, no matter which agencies regulate which crypto tokens, according to him. "Its unrealistic to think that there should be a single rulebook to oversee these different types of digital assets," he said.
The SEC must take the first step.
Amy Lynch, a former SEC regulator and president of FrontLine Compliance, said there are no current regulations on the SEC's Spring regulatory agenda that address specifically cryptocurrency.
"However, it may not be the SEC that takes the first step in regulating this market," said the author, adding that Treasury may be the first to approve any additional specific regulation on other cryptocurrencies. or, it may go the opposite direction.
In any event, Lynch said, the Securities and Exchange Commission, the CFTC, the National Futures Association, and the Financial Industry Regulatory Authority "must all work together to regulate the crypto markets, which is what makes it difficult from a regulatory standpoint."
Lynch said that the regulation issue continues to be pushed primarily by crypto exchanges and ETFs through SEC filings.
She added that several spot ETFs have been filed for registration, but none have been approved so far due to the absence of regulation of the underlying crypto asset.
Lynch said the crypto markets will continue to push until the SEC adopts legislation. "The crypto markets want regulation to level the playing field and give legitimacy to the market."