Gary Gensler says that crypto exchanges are developing network effects that make them highly dominant players, just like in other financial markets.
Gary Gensler – chairman of the Securities and Exchange Commission (SEC) – said on Monday that the cryptocurrency market is, ironically, not decentralized.
The chairman argues that there is significant market dominance among a number of “intermediaries” in the industry, which is stifling competition.
Centralization in financial markets
According to the chairman’s prepared remarks at the annual meeting of the Association of Financial Markets and Securities Industry, central intermediaries in financial markets tend to benefit from “size, network and access to valuable data”.
He continued: “Although technological innovations are constantly disrupting incumbent business models, centralization still tends to re-emerge.
As the chairman noted, only four U.S. asset managers currently control more than 80% of the total assets held in U.S.-registered investment company index funds. The stock market makers responsible for processing orders on the retail market are also trending towards centralization, as execution largely takes place off the exchange.
Gensler argues that the trend toward centralization has even extended to the cryptocurrency market, “which is founded on the idea of decentralization.”
“The sector really has a significant concentration of intermediaries in the middle of the market,” he said. Therefore, we must continue to be wary of areas where concentration and potential economic rents have built up or may do so in the future. “
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The biggest players in the cryptocurrency industry right now are cryptocurrency exchanges – companies that facilitate trading of liquid digital assets. During the industry-wide crisis following the crypto market crash throughout May and June, bankrupt companies turned to world-leading exchanges like FTX and Binance for relief and support. aid.
“Since it involves intermediaries, so-called crypto exchanges or lending platforms and the like, they are highly centralized,” the SEC chairman said.
Dominant exchanges like Binance continue to branch out into every sector of the crypto industry – from cloud mining to stablecoins, to its own flagship blockchain.
In August, the European Central Bank issued a discussion paper addressing how the dominant technology platforms that issue cryptocurrencies can develop a centralized “network externality” in the currency market. . It proposes to use CBDCs against such cryptocurrencies that challenge the monetary supremacy of the local currency of the local area.
All Cryptocurrency Exchanges Break the Law: Gensler
In the Q&A after his remarks, the SEC chairman suggested that most, if not all, crypto exchanges are listing unregistered securities, thereby breaking the law.
The Chairman has repeatedly stated his belief that nearly all crypto assets other than Bitcoin are likely securities. Meanwhile, major exchanges often list hundreds of tokens.
“It is not out of the question that there are some security tokens on it,” he said.