The road ahead looks challenging for the crypto industry. Yesterday (Sept 8), the chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler came down hard against the digital asset industry. He said that a "vast majority" of existing cryptocurrencies are securities, issued to the public in violation of federal laws.

"These are not laundromat tokens. Promoters are marketing, and the investing public is buying most of these tokens, touting or anticipating profits based on the efforts of others," said the chairman in his prepared remarks to the Practicing Law Institute.

Several voices within the crypto industry have been demanding a new set of rules specifically for digital assets, as they believe existing securities law is incompatible with cryptocurrencies. However, Gensler made it very clear that no such regulations will not be forthcoming and that most cryptocurrencies should be regulated as securities in the interest of investor protection.

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"Nothing about the crypto markets is incompatible with the securities laws," said Gensler. "Investor protection is just as relevant, regardless of underlying technologies," he added.

The SEC chairman also had crypto intermediaries such as exchanges in his crosshairs. He argued that trading platforms should be registered with the SEC as securities exchanges and broker-dealers. He also said that cryptocurrency and stablecoin operators should "get their tokens registered and regulated."

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He ended his address by quoting Joe Kennedy, saying, "no honest business need fear the SEC." Joe Kennedy was the first Chairman of the SEC.

US Fed Chair echoes sentiment

On the same day, James Powell, chair of the Federal Reserve, echoed these sentiments. He said the crypto sector needs to be "appropriately regulated" if it intends to play any role in the global financial system. But perhaps more concerning were his remarks on inflation. "It is very much our view, and my view, that we need to act now, forthrightly, strongly, as we have been doing," he said during a question-and-answer session held by the Cato Institute.

"The longer the inflation remains well above target, the greater the risk that the public begin to see higher inflation as the norm," he explained. On the same day, the European Central Bank (ECB) hiked its benchmark interest rate by 75 base points, and Powell's remarks suggest the U.S central bank could also follow suit in September.

Usually, news of benchmark interest rate hikes causes crypto prices to dip. Just ten days ago, at the Jackson Hole conference, Powell made it clear that inflation is the Fed's top priority, and they would fight it head-on, even if some "pain" is required. His comments led to a sharp decline in the crypto market. Bitcoin nosedived 6 percent, and the global crypto market cap also slipped below $1 trillion after Powell's hawkish comments.

However, this time round, Powell's comments seem to have had the opposite effect. BTC has risen from around $19,168 at the time of Powell's remarks to $20,638 at the time of writing. That's an increase of around 7.60 percent in that last 16 hours or so. Ethereum, the second largest cryptocurrency by market cap, is also showing a similar rally during the same period.

In the last few months, cryptocurrencies have plummeted amidst rising inflation. The key inflation rate hit an all-time high of 9.1 percent in June, causing a significant dip in the crypto markets. However, inflation has slowed since then, retracing its steps to the 8.5 percent mark in July. Therefore, investors could see Powell's commitment to fighting inflation “until the job is done” as a positive sign.

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Another reason for the surprise rally in the crypto market could be the uptick in U.S stocks. The Dow Jones Industrial Average jumped 0.61percent, and the Nasdaq Composite advanced 0.60 percent last night after Powell’s comments. The correlation between stocks and the crypto market has been strong over the previous few weeks. Therefore, stocks closing the day on a high, despite Powell's comments, may have held crypto markets in good stead.

(Edited by : Abhishek Jha)

First Published:Sept 9, 2022 2:28 PM IST