It seems that the U.S. Securities and Exchange Commision (SEC) chairman, Gary Gensler, has cryptocurrencies in his crosshairs, as he takes aim at the crypto space. If you have any doubts about that fact, consider the following:
- The ongoing SEC lawsuit against XRP and former executives, where the SEC claims XRP was traded as an unregulated security.
- Gensler recently asserted to E.U. regulators that several crypto exchanges harbor “fraud scams and abuse.”
- During the Aspen Security Forum in August, Gensler said the crypto space was “…rife with fraud.”
- Last month, Gensler called on the U.S. Congress to give him more authority to reign in crypto.
- It’s reported that the SEC, under Gensler’s direction, has launched an investigation into DeFi platform Uniswap.
- Gensler has described the cryptosphere as the “wild west” in need of oversight.
Most recently, Gensler has made known that he wants his agency to ban a specific financial practice used by most crypto and traditional trading exchanges. The practice is known as Payment for Order Flow (PFOF).
PFOF enables trading exchanges to make money selling the trading orders of their customers to third-party market makers. The makers scrape a percentage of a penny in the price difference between the “buy-and-ask” spread of a deal before closing the transaction. At tens of thousands of transactions a day, those fractional pennies add up.
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Exchanges that use PFOF as a source of revenue include: E*TRADE, Robinhood, Charles Schwab, Ameritrade, Vanguard, and Ally Invest. Most of those exchanges also make money with transaction fees, commissions, as well as additional charges on deposits and withdrawals.
However, of those exchanges, Robinhood is the only one that deals in cryptocurrencies and doesn’t charge any fees. Losing revenue from PFOF could be devastating to a crypto-friendly exchange such as Robinhoold.
The move seems very consistent with recent anti-crypto actions and comments expressed by the SEC chairman. However, there are reports that exchanges could fire back against the SEC and sue it for legislative overreach.
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It’s too early to tell whether Gensler or the exchanges will gain the upperhand regarding the issue of PFOF. One thing for sure is that Gensler seems to think he’s the sheriff who can roundup and clear-out the bad guys in the self-described “wild west” of cryptocurrency.
On The Flipside
- Hyper regulation by Gensler could stifle the growth of cryptocurrency as well as resultant tax gains within this nascent, multi-trillion dollar industry.
- If successful, Gensler could play a big role in driving cryptocurrency exchanges out of the U.S. creating an economic exodus that could cripple America decades from now.
