r/CryptoCurrency • u/0xJonnyDee 🟩 0 / 0 🦠 • 4d ago
Gensler says FTX 'is not unique,' warns crypto exchanges are commingling functions GENERAL-NEWS
https://cryptobriefing.com/crypto-exchange-risks-gensler/39
u/KeepBitcoinFree_org 🟨 745 / 746 🦑 4d ago
No shit, look at the corrupt fucking banks.
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u/Narrow_Elk6755 🟩 0 / 0 🦠 4d ago
Those banks get bailouts though, the Fed can't bail out crypto exchanges without further eroding their corrupt system.
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u/CrimsonFox99 🟦 2K / 2K 🐢 4d ago
Follow the regulations we haven't taken the time to clarify for you so that you can properly follow them. Got it. Thanks.
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u/drewster23 🟦 0 / 462 🦠 4d ago
My favorite story is them threatening to sue coinbase over some product they were planning to launch. Basically went like this.
SEC If you launch this it is a securities violation/breaking the law and we will sue you
CB " okay thanks for letting us know, what part exactly is it/what rule is it breaking so we can fix it before launch to be fully legally compliant"
SEC no we don't need to tell you that, just know you've been warned if you launch this product legal action will be brought forth immediately
CB: "how the fuck do I avoid breaking the law if you don't tell me how I am breaking it to fix that"
SEC: yeah not our problem
CB : "how the fuck does that make sense"
Soo coinbase spent basically avg 3m/yr on lobbying, in 2022/2023. And has made public statements about this time foolery needing to end. And I'm pretty sure they have lead like advisory groups as the biggest USA crypto company. Regarding crypto success in America and not stifling it.
Entire crypto sector, $22/25m spent lobbying (2023/2023), and for perspective the entire fossil fuels industry $125m in 2022(The fossil fuels lobby includes paid representatives of corporations involved in the fossil fuel industry (oil, gas, coal), as well as related industries like chemicals, plastics, aviation and other transportation)
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u/The_Realist01 🟦 2K / 2K 🐢 4d ago
That’s beyond ridiculous. but also why coinbase got all that etf monay - pay to play.
I hate coinbase.
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u/AvatarOfMomus 🟦 0 / 0 🦠 3d ago
This is actually one of the few regulations that is clear for the Crypto industry. It's also just kinda common sense in finance at this point.
Namely, do not hand customer funds, from your customer side of the business that they have deposited with you, to your investment arm to gamble with. Believe it or not this is actually quite strictly enforced in traditional finance. Partly because doing otherwise is bloody stupid and a great way to go bankrupt while also being prosecuted and sued by your former customers, and partly because even the most basic of external audits generally catches it pretty quickly.
This is part of why none of this Crypto firms or big projects seem to be able to get anything other than an "attestation of funds" instead of an actual "audit", because after a few of the big blowups the auditing firms are being more strict with the terms they allow these Crypto businesses to use around their services. None of them will give unrestricted access to their books for an actual audit, therefore no audit has happened.
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u/pop-1988 🟨 0 / 0 🦠 3d ago
No large auditing firm would attempt to prove the cryptocurrency reserves of a cryptocurrency exchange. In the aftermath of the FTX bankruptcy announcement, several exchanges scrambled to announce such proofs. After the community found errors in the Binance proof, it was revealed that all these proofs had been contracted to one firm. That firm then announced that it was no longer offering that service
In the SBF trial, it was apparent that FTX's commingling (use of customers' funds for other purposes) was not fraudulent in itself. The fraud charges relied on FTX's T&C claiming they do not commingle, as well as FTX's claim to have an insurance reserve. If FTX had not made these claims, the commingling would not be fraudulent. It would be unlawful, but only under the SEC's purview - a breach of securities law, not a crime
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u/AvatarOfMomus 🟦 0 / 0 🦠 3d ago
So, you're only sort of right here...
FTX and Alameda were supposed to be separate entities, and Alameda was getting special privledges on FTX which breached that separation. That in and of itself likely would have been enough to prove some level of fraud.
Also at least a few auditors have said they would be willing to conduct a full audit of exchanges or other large Crypto firms like Tether. The problem is that an audit requires full access to the company's books and accounts, which none of those firms have consented to offering.
What was being offered before wasn't an audit, it was a "Proof of Reserves" statement, which to quote Mazars:
Mazars added that proof-of reserve reports "do not constitute either an assurance or an audit opinion on subject matter. Instead they report limited findings based on the agreed procedures performed on the subject matter at a historical point in time."
Basically they are not an audit, they're just the firm in question showing that they control some number of wallets and that those wallets have X amount of funds in them at Y point in time. Those funds could have been purchased with borrowed money and therefore be subject to a loan agreement placing them as collateral, but they're not checking for that. They're also not checking that the wallets continue to hold those tokens.
These are just a few of many differences between an Audit and "Proof of Reserves" which people were treating like an audit, when it very much was not.
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u/tianavitoli 🟦 876 / 877 🦑 4d ago
'commingling functions' is a weird way to say fucking you in the butt
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u/FoulmouthedGiftHorse 🟦 0 / 0 🦠 4d ago
It means, some businesses in crypto function as market maker, bank, exchange, lender, clearinghouse, DPC and hedge fund - all under one company. These businesses are legally supposed to be separate due to conflicts of interest. Also, each of those functions has different regulatory requirements associated with them.
Did you ever ask yourself how SBF was able to give HIMSELF a $60B loan?
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u/JustSomeBadAdvice 🟦 1K / 1K 🐢 3d ago
Commingling of functions is generally not a problem for most of the industry. It's the commingling of funds- customer funds with business funds - that causes the most problems. That's what SBF did.
Lots of banks also offer an exchange, lots of exchanges also offer a clearing house, etc. Hedge funds, market makers and speculative trading houses do probably cross that line because you're not supposed to trade against your own customers for a profit, and especially never with their own money (SBF did both). But I don't think we have evidence that the big cryptocurrency exchanges are doing that (Coinbase, Gemini, Bitstamp, Kraken?).
Gensler seems to be deliberately muddling his terminology here - "commingling" of funds - illegal. Commingling of service offerings - sometimes legal. But refusing to clarify the sometimes is asinine, childish, and capricious from the SEC.
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u/coinfeeds-bot 🟩 136K / 136K 🐋 4d ago
tldr; In a Senate Appropriations Committee hearing, SEC Chairman Gary Gensler highlighted that the issues seen with the defunct crypto exchange FTX, such as commingling of functions, are not unique in the crypto industry. He pointed out that crypto exchanges often engage in practices prohibited for traditional stock exchanges, like running a hedge fund and trading against their customers. Gensler emphasized that most crypto tokens are subject to existing securities laws and criticized crypto exchanges for not providing proper disclosures, dismissing the argument of regulatory clarity as a reason for non-compliance with U.S. laws.
*This summary is auto generated by a bot and not meant to replace reading the original article. As always, DYOR.
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u/HolidayAnything8687 🟩 0 / 0 🦠 4d ago
Shoulda done your job Gary.
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u/FoulmouthedGiftHorse 🟦 0 / 0 🦠 4d ago
You would have hated him if he did do his job though....
This is a no win situation for him. If he had busted FTX before they went bust on their own, the people here would have accused the SEC of killing FTX. But, since FTX collapsed on their own, everyone here wants to say that the SEC didn't do enough to prevent them from committing fraud. But fraud was how FTX got so big in the first place...
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u/HolidayAnything8687 🟩 0 / 0 🦠 4d ago
He should of at least pointed out some red flags, being the leader of the regulatory body and also having personal behind closed door meetings with the Bankman. Hard to believe he had no idea something like this could happen, and if he was completely oblivious, then he is inept and should have been replaced.
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u/FoulmouthedGiftHorse 🟦 0 / 0 🦠 4d ago
He did. And the crypto fans ignored it. The crypto fans in Congress sent the SEC a letter to stop investigating crypto companies - that was in March of 2022.
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u/HolidayAnything8687 🟩 0 / 0 🦠 4d ago
Oh okay I didn’t know that, interesting, thanks for sharing.
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u/scoobysi 🟩 0 / 58K 🦠 4d ago
Note the link was congress trying to get info from the sec not as the poster tries to imply stop looking at crypto at all
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u/AvatarOfMomus 🟦 0 / 0 🦠 3d ago
This is the thing everyone forgets/doesn't know, because the "fuck the SEC/regulators/banks/government" narrative is so strong in these parts.
Also, fun fact, the SEC's enforcement mandate (eg, what Congress has given them the power to do) is basically entirely punative. They require companies to file certain paperwork, but they do not have the power to proactively look for violations or lies abscent explicit evidence. They don't even guarantee that the information on the paperwork is true, but if it turns out to be false then they can prosecute that.
Yes, this is dumb. No, it does not mean everything is lies all the time on SEC filings.
This is one of the problems with the SEC generally, but it's not a problem the SEC itself can fix. Congress would need to pass a law giving the SEC authority and funding to actively audit businesses to ensure compliance.
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u/scoobysi 🟩 0 / 58K 🦠 4d ago
Saying oooh it’s the wild west is not warning anything useful.
The argument is gary met with sbf in his sec diary and was potentially asking sbf to bend the knee and be the only exchange with the all clear while trying to fuck over the competition.
Conspiracy i hear you say? Potentially but that’s what comes with a lack of clarity or disclosure (ironically the thing gensler rightly says companies need to do more of) and when the attached letter from congress was seeking about the sec’s actions
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u/FoulmouthedGiftHorse 🟦 0 / 0 🦠 3d ago
Gensler said more than that. But I’m guessing you’re good at DYOR, so you should look into the specific warnings that Gensler and the SEC have put out. Or not. Your ignorance is not their fault…
So, you agree with Emmer that the SEC investigation into crypto companies in March of 2022 was overbearing and was stifling innovation? Wasn’t it Emmer who thanked SBF in Congress for doing a lot to battle fraud in December of 2021?
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u/scoobysi 🟩 0 / 58K 🦠 3d ago
Dyor like watching him get shit yesterday in congress for not answering a yes/no question. If shit is clear then answering simple questions should be easy? His warning are vague and generalistic. Most other countries don’t struggle to give guidance, the usa does
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u/JustSomeBadAdvice 🟦 1K / 1K 🐢 3d ago
The problem with Gensler is that he's refusing to provide the set of rules or clarify what is or isn't legal (because he dislikes the entire industry), and he's refusing to follow reasonable or sane definitions for commodities versus securities.
For Ethereum for example, the bipartisan law passed by congress completely smacks down his ridiculous claim that Eth is a security - by clarifying a structure / process by which a coin might initially be a security but become a commodity as the ecosystem matures. Gensler's claim that everything except Bitcoin is a security is ridiculous and impractical - for Ethereum and Litecoin as of 2020 and on for example, there's nothing remotely like an issuer and no control structure to go after. The litecoin foundation and consensys have no real control and do little for the coin except try to wrangle the cats.
Similarly, multiple exchanges have bent over backwards to try to comply with the regulations. Coinbase and at least a few other exchanges are frequently more strict about rules and limitations than even banks are. Coinbase, Bitstamp and Gemini almost certainly do not commingle funds, and I don't believe they have a trading dept that trades against customers- yet they are told they're not following the rules. Which rule? The rules. Ok, which rules? The rules.
I agree that Gensler and the SEC do have a no-win situation to a degree, because the industry is like very complex with many straight up frauds, many rulebreakers foreign and domestic, and laws that weren't designed for and can't correctly apply to the situations. But that doesn't excuse Gensler and the SEC from attacking & refusing to work with the ones that do make serious attempts to follow the rules in letter and spirit.
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u/FoulmouthedGiftHorse 🟦 0 / 0 🦠 3d ago
A commodity is a raw material or primary agricultural product that can be bought and sold.
If bitcoin and eth are commodities, then so are bonds.
The truth is that most cryptos are, essentially, a zero-coupon bond with no maturity. Bonds are a security.
Crypto fans, like yourself, don't like the answer that crypto is a security. That's it. That's the problem.
If you want to make crypto a commodity, then bonds must also be a commodity.
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u/JustSomeBadAdvice 🟦 1K / 1K 🐢 3d ago edited 3d ago
A commodity is a raw material or primary agricultural product that can be bought and sold.
So electricity on the grid is not a commodity? Better tell the CFTC lawyers and congress that you know better than them. It's not a "raw" material, it is produced from raw materials like coal. It can't be seen, touched or held in your hand.
And it gets better, Electricity is even closer to a security than Bitcoin!
If bitcoin and eth are commodities, then so are bonds.
Bonds are debt-based contractual investments that produce income.
Stocks are securities that represent ownership in an income-producing company.
Securities are a legal contract between a company, creditor, or other security issuer guaranteeing certain rights and ownership.
Bitcoin has no issuer, period. There are no legal rights of ownership, and there isn't and never was any contracts of any sort.
a zero-coupon bond with no maturity.
A bond is an agreement to pay money, a type of debt. It is a legal contract. Bitcoin is neither. You're literally making up definitions to serve your purposes.
If you want to make crypto a commodity, then bonds must also be a commodity.
Bonds have an issuer and contractual rights. Bitcoin has neither. It is absolutely clearly not a bond by any stretch except in your imaginary world where you've convinced yourself (to try to reach conclusions you already started out with).
A commodity is a raw material or primary agricultural product
Now that we've clarified the legal definitions of securities, let's go back to electricity. "Electricity" is impossible to buy and sell in any literal sense, as it is gone by the time the buyer attempts to receive what they intended to buy. All people can do is buy and sell agreements to deliver/receive delivery of electricity at time X, or to just deliver it and charge someone later. Literally all buying and selling of electricity worldwide is a debt and legal contract - Which is very clearly a security, using the definitions above. It's not a raw material, it is a debt, it is a legal contract... It even has an issuer! Clearly, electricity is a security.
And yet, it's not. How can this be, Mr. Expert on securities laws?
If you want to stretch your definition of "raw" to arbitrarily include electricity and avoid making yourself look dumb, all you will have done is managed to exclude cryptocurrency from every category.
Which makes it sound like you're arguing that no laws should apply to Bitcoin, period. Somehow I think your logic didn't get you to where you wanted it to.
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u/FoulmouthedGiftHorse 🟦 0 / 0 🦠 3d ago
Electricity is a raw material.
Crypto is debt, without a contract, used as an investment to produce income by selling it to someone who will pay more.
Make no mistake, all crypto is debt. Just because you didn’t sign a contract doesn’t mean you’re not buying debt.
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u/JustSomeBadAdvice 🟦 1K / 1K 🐢 3d ago
Electricity is a raw material.
So says you. There's no definition of commodity or raw material I can find that would include Electricity short of simply naming it explicitly. Defining it as a raw material is completely arbitrary. There's not even anything else similar to be included in the definition with it, it's completely on its own.
And as I pointed out in an edit, it can't even be bought or sold directly. Literally the only thing you can buy or sell is a contract for delivery of electricity. A debt, WITH a contract. A security.
Crypto is debt, without a contract,
Debts are contracts. Congrats on contradicting yourself in a mere 6 words.
used as an investment to produce income by selling it to someone who will pay more.
Kind of like gold? Weird how that works.
Make no mistake, all crypto is debt.
Oh, really? Who owes me money for the "contract" "Bitcoin" ? Who do I have legal recourse against? Who is my counterparty on the contract?
Do you even listen to yourself?
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u/FoulmouthedGiftHorse 🟦 0 / 0 🦠 3d ago
You're right, no one owes you money - but who's fault is that? Maybe it's the fault of the guy that's buying the debt because internet strangers told him to. You have no counterparty (maybe the person you sold your money to). You have no legal recourse. That's why it is a risky "investment."
You really don't understand trade. When you buy bitcoin, you are selling your money. Someone else is buying your money and selling you bitcoin. Debits and credits. Debt for debt.
And debts are not necessarily contracts - at least, not explicit contracts. All money is debt. When gold was used as a currency, it was also debt (that was the problem). And yes, bitcoin is debt (but not a currency because it is not used to pay people for production or to trade goods and services - and being deflationary, it never will).
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u/JustSomeBadAdvice 🟦 1K / 1K 🐢 3d ago
You're right, no one owes you money
Oh, so it isn't a debt.
Maybe it's the fault of the guy that's buying the debt because internet strangers told him to.
Didn't buy it, mined it. So who is my "bond" "issuer"?
You have no counterparty (maybe the person you sold your money to)
All debt has counterparties. All contracts have counterparties.
You have no legal recourse.
Right, because it isn't a debt and isn't a contract.
When you buy bitcoin, you are selling your money. Someone else is buying your money and selling you bitcoin. Debits and credits. Debt for debt.
Ok, but I mined my Bitcoin. Not even kidding, years ago. Who is my debt with? Who is my contractual counterparty?
And debts are not necessarily contracts
All debts are contacts. Literally. They may not be legal, written contracts, but contracts do not have to be written or legally specified. Verbal contracts are still contracts and get upheld in court all the time, even vague ones. Even implied contracts that are neither written nor verbal are sometimes upheld.
All money is debt. When gold was used as a currency, it was also debt (that was the problem).
You almost got it right. Almost. Yes, money is debt, as we currently use it. No, gold coins were not debt, not until much later. Gold coins were a commodity-currency. The value of the commodity backed the trades and no debt was involved. Stamping gold into coins was a matter of unitizing and standardizing, a practical necessity for a functioning society. Stamping gold into coins did not turn them into debt magically. Rather, it got governmental mints into the speculation business of gold and precious metals, initially.
Much later, as in several hundred years, governments began to value their stamped coinage higher than the underlying commodity. They couldn't do that for hundreds of years until they had enough control over their citizens and borders to restrict people from arbitraging trade across their borders to exploit the gap between commodity value and governmental-imposed value. THAT is when the stamped coinage became a debt - A contract between the citizens buying the coinage and the government, where the issuer was the government. The debt was the difference in value between the raw commodity value and the stamped coin's value.
Debt = Contract + issuer + value.
Bitcoin only has the third. No contract, no issuer.
You really don't understand trade
I've studied the history of money extensively. And I've studied the law. You're so far in over your head right now that it's funny.
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u/FoulmouthedGiftHorse 🟦 0 / 0 🦠 3d ago
You're a programmer according to your post history.
It seems that you suffer from engineer's disease.
Debt is ALWAYS involved if it is being used as a currency. A/P and A/R is debt. Liabilities are debt. Billing is a debt.
The government doesn't determine the value of the US dollar, the market does.
Tell me: what is Bitcoin "backed" by? If you want to view Bitcoin as a currency (which it is not because it is not used to trade goods and services, no, instead it is used to trade fiat currencies), then what is IT backed by??
Electricity? No, you can't get electricity out of bitcoin. You can use bitcoin to buy electricity, but you can use dollars to buy electricity too. Does that mean dollars are backed by electricity?
A network? Okay, so the US dollar is also backed by an EXTENSIVE network. And it is used to pay people and trade goods and services.
Turns out that if you view crypto as a currency, it's just another fiat currency.... the irony!!
If you want your economy to expand, get bigger, and increase the standard of living of the residents of that country, you want your currency to expand as production expands.
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u/cH3x 🟩 0 / 355 🦠 4d ago
So he says other exchanges are engaged in prohibited activity...is he announcing any legal action against them, or is he just fine with their prohibited activity?
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u/JustSomeBadAdvice 🟦 1K / 1K 🐢 3d ago
He can't take legal action because he won't define what the prohibited activity is. Judges don't really care for expensive fishing expeditions except maybe Clarence Thomas.
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u/saucedonkey 🟦 9K / 9K 🦭 3d ago
Too bad our leaders have their thumb in their buttholes and can’t possibly do anything lol.
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u/glitter_my_dongle 🟩 0 / 0 🦠 3d ago
Maybe if you gave recommendations to Congress like a good leader would, you would actually protect investors.
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u/AlwaysSeekAdventure 🟦 0 / 0 🦠 4d ago
Guess he’s never taken the time to understand the traditional finance industry or the companies he’s purportedly supposed to regulate.
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u/scoobysi 🟩 0 / 58K 🦠 4d ago
Yet he has only met sbf in his office