The “Wild West” of crypto could be reaching a regulatory boiling point

The good, the bad, and the cryptic… Crypto’s so-called “Wild West” could be in for a reckoning. For over a year SEC Chair Gary Gensler has said that many crypto products should be considered securities and regulated as such. Think: the same controls and protections as stocks and bonds. The SEC's doing more than talking: as part of an insider-trading case last month, it classified nine cryptos as securities.

• An asset is deemed a security by the SEC if it’s “an investment of money, in a common enterprise, with a reasonable expectation of profit derived from the efforts of others.”
• Right now: A lot of cryptos are considered commodities, and lots of crypto products are virtually unregulated.

Scrutiny is brewing… This year, high-profile instances of crypto fraud have cranked up the heat from regulators and lawmakers. Recent meltdowns of some high-yield crypto lenders have added fuel to the fire. In many crypto-fraud cases, there isn’t much investors can do. People who had their funds locked by crypto lender Celsius, for example, are begging bankruptcy judges for help. Now:

• Crypto lenders (think: BlockFi, Celsius) are facing increased scrutiny. In February, BlockFi agreed to pay the SEC $100M for failing to list its crypto-lending product as a security.
• So are crypto exchanges: One Senate staffer said every US crypto exchange is being investigated. And blockchain firm Ripple is fighting a lawsuit that argues its XRP currency is a security.
• Chasing clarity: A Senate proposal released this month seeks to give commodities regulators the leading role in overseeing bitcoin and ethereum, while giving the SEC some oversight.