Gary Gensler – chairman of the Securities and Exchange Commission (SEC) – disclosed on Monday that crypto markets are not decentralized.
He claimed that there is significant market dominance among a few “intermediaries” in the industry, which is stifling competition.
Centralization on Financial Markets
According to the chairman’s prepared remarks at the Securities Industry and Financial Markets Association’s annual meeting, central intermediaries in financial markets tend to benefit from “scale, network effects, and access to valuable data.”
“Though technological innovations repeatedly disrupt incumbent business models, centralization still tends to re-emerge,” he went on.
According to him, merely four asset managers in the U.S. have control over 80% of total assets held in U.S.registered investment company index funds.
Also, the equity market makers responsible for handling retail market orders are also pushing towards centralization, due to executions largely taking place off-exchange.
The chairman argued that centralizing tendencies are even extending to the crypto market – which was founded on the idea of decentralization.
“This field actually has significant concentration among intermediaries in the middle of the market,” he said. Thus, we must remain vigilant to areas where concentration and potential economic rents have built up or may do so in the future.”
At the moment, the largest crypto industry players are crypto exchanges – firms that facilitate liquid digital asset trading.
During the ongoing crypto bear season, bankrupt companies turned to world-leading exchanges like FTX and Binance for bailouts and support.
“As it relates to the intermediaries, the so-called crypto exchanges or lending platforms and the like, they’re highly centralized,” said the SEC chair.
Top exchanges like Binance continue to expand into every sector of the crypto industry – from cloud mining to stablecoins, to its own leading blockchain.
In August, the European Central Bank issued a discussion paper slightly touching how dominant tech platforms issuing cryptocurrency could develop centralizing “network externalities” in the money market.
It suggested the use of CBDCs in combating such cryptos from challenging the monetary supremacy of a local region’s domestic currency.
After his remarks came the question and answer period.
The SEC chairman suggested that most, if not all crypto exchanges are listing unregistered securities, thus violating the law.
The chairman has always related his belief that nearly all crypto assets besides Bitcoin are likely to be securities.
Meanwhile, major exchanges typically list hundreds of tokens.
“It’s sort of beyond probabilities that there are some securities tokens on them,” he said.