By Sam Ozer-Staton

As the cryptocurrency craze intensifies, small-time investors and business titans alike are reading the tea leaves for signs of government regulation of the nascent industry. On Monday at the Code Conference in Los Angeles, Preet interviewed Gary Gensler, Chair of the Securities and Exchange Commission, about the future of crypto.  

Preet spoke with Gensler following a spate of recent cryptocurrency news. On Friday, China declared all financial transactions involving cryptocurrencies illegal and issued a nationwide ban on cryptocurrency mining. Meanwhile, in the United States, Treasury Department officials indicated that regulation is forthcoming, specifically relating to “stablecoin,” a crypto asset that is ostensibly pegged one-to-one to the U.S. dollar or another stable asset, to protect against the kind of volatility traditionally associated with cryptocurrency markets. 

Nellie Liang, an undersecretary of the Treasury, said last week of stablecoin: “It is important for the agencies to act quickly to ensure there is an appropriate U.S. regulatory framework in place.” 

But what would a regulatory framework for crypto look like? 

At the Code Conference, Preet pressed Gensler repeatedly on the question of how aggressively he would go after the industry. Preet specifically asked Gensler about recent remarks made by Ray Dalio, the founder of Bridgewater, the world’s largest hedge fund. Dalio said earlier this month at the SALT Conference: “I think at the end of the day if [Bitcoin] is really successful, they will kill it and they will try to kill it. And I think they will kill it because they have ways of killing it.”

In response, Gensler repeatedly said that he is “technology neutral” — that is, he is not biased against decentralized digital currencies. But he compared the need for regulation of the crypto space to the early days of the auto industry, saying:

“Let me just sort of make a thought exercise comparing this to when the automobile came along. Would it have been good for Detroit if somebody in the nineteen-teens didn’t come up with traffic lights, stop signs, speed limits and even a cop on the beat? It actually would not have been good for Detroit. Detroit would not have sold as many cars. Or if I could have a little bit more fun if it was if we were all watching football or basketball with no ref and no rules. I mean, for a game or two or maybe three games, it would be really exciting and interesting. But afterwards, it wouldn’t be.”

Later in the interview, Gensler was even more explicit, saying: “This is not going to end well if it stays outside the regulatory space.”

But what are regulators and critics of crypto so worried about? 

Cryptocurrencies, critics argue, present a danger to the authority of central banks over the money supply in their countries. “Every country treasures its monopoly on controlling the supply and demand” of currencies, Bridgewater’s Dalio said in April. “They don’t want other monies to be operating or competing, because things can get out of control.”

Regulators are particularly worried about the possibility of a crash in the value of crypto assets, which, depending on who you ask, are classified as either a currency, a commodity, or a security. “I have seen one fool’s gold rush from up close in the lead-up to the 2008 financial crisis,” Michael Hsu, the Acting Comptroller of the Currency, a bureau within the Treasury Department, said in remarks on Tuesday. “It feels like we may be on the cusp of another with cryptocurrencies.”

The regulatory safeguards designed to protect the financial system from another crash do not currently extend to “crypto banks” — banking and investment apps that allow investors to easily buy, sell, and hold digital assets. While traditional banks are required to have reserves to ensure that if some loans go bad, customers can still withdraw funds, crypto banks are not required to be as well-capitalized, and the institutions that invest with them can take risky bets.

What questions or concerns do you have about crypto? Are you glad that Chair Gensler has suggested that he will act to reel in the industry? Or are you a crypto-optimist who would rather see the market, not the government, determine the industry’s fate?

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