A top government official shared new plans this week to bring additional protection to investors in the $2 trillion cryptocurrency market.
Securities and Exchange Commission (SEC) Chairman Gary Gensler announced several initiatives during a speech Monday to expand investor protections in the crypto market. He said the agency plans to register and regulate crypto exchanges, and will explore separating out asset custody to minimize investor risk. Unlike traditional investment banks and platforms, crypto exchanges generally take custody of their customers’ assets, which can increase investors’ vulnerability to large-scale hacks. Last year, scammers and hackers stole $14 billion in crypto.
Gensler also announced the SEC will partner with the Commodity Futures Trading Commission to address platforms trading crypto-based security tokens and commodity tokens.
“There’s no reason to treat the crypto market differently just because different technology is used,” Gensler said at the Penn Law Capital Markets Association’s annual conference. “These crypto platforms play roles similar to those of traditional regulated exchanges. Thus, investors should be protected in the same way.”
Gensler’s comments come almost a month after President Joe Biden signed an executive order spurring federal agencies to look at potential risks and benefits of cryptocurrencies. Biden’s move encouraged optimism among crypto experts, many of whom interpreted it as a sign the federal government increasingly recognizes the crypto industry as mainstream and legitimate. For investors who have been concerned about the Wild West feel to the crypto market, experts say additional regulation could bring new protections to investors.
Cryptocurrency is still in its relative infancy as an asset class, so any new regulation has the potential to make a big impact on investors’ portfolios. While the exact timing of new crypto regulation is unclear, here’s what crypto investors should make of Gensler’s announcement.
What Does New Regulation Mean for Crypto Investors?
Many experts say more regulation could increase market stability and the price and value of crypto. It also has the potential to increase investor protections in the market, prevent fraudulent activity within the crypto ecosystem, and provide clear guidance to allow companies to innovate in the crypto economy. So while crypto investors shouldn’t make any immediate changes based on Gensler’s comments, it’s a good reminder that more regulation is coming.
In terms of cryptocurrency investing, the fundamentals remain the same. Experts say investors should stick to the big two cryptocurrencies: Bitcoin and Ethereum. They have a longer track record of increasing in value, even while they remain highly volatile with price fluctuations by the day and hour.
You should also make sure cryptocurrency investments don’t get in the way of other financial priorities such as saving for emergencies, paying off high-interest debt, and saving for retirement. Make sure you don’t invest more than you’d be OK losing — or less than 5% of your total portfolio, experts say.
As for where you buy and trade crypto, it’s wise to choose a mainstream, high-volume cryptocurrency exchange — like Coinbase or Gemini — that proactively complies with evolving federal and state regulators.