Businessman Mark Cuban and former SEC official John Reed Stark recently had a Twitter exchange about how to approach crypto regulation. Stark expressed caution about cryptocurrencies, while Cuban emphasized the need for clear laws.
The two also share different views on what caused investor losses following the highly publicized collapse of the FTX stock market.
Mark Cuban’s case for clear crypto regulation
Mark Cuban claims that the U.S. Securities and Exchange Commission (SEC) went down the wrong path on crypto regulation. Unlike Japan, he claimed, FTX customers suffered significant financial losses in the US. Cuban thinks US investors would be protected if the SEC implemented Japan’s explicit rules.
As part of its crypto regulations, Japan separates money from customers and businesses and imposes clear wallet requirements.
In February, BeInCrypto reported that FTX Japan conducted a successful beta testing initiative that resumed user withdrawals. Meanwhile, Japan could soon introduce stricter AML laws as part of crypto regulation.
In this regard, Cuban stressed, “The SEC is not infallible. It makes mistakes. In this case, it chose the wrong course. It was arrogant to think that the framework covered every possible situation.”
“In Japan they were very loud in saying the obvious, that FTX was not a crypto problem, it was a fraud problem,” he added.
Stark quoted an article in the Wall Street Journal highlighting what Japanese law covers. He noted that crypto exchanges are required to register with authorities. It includes following mandates such as keeping client funds separate from their own accounts and holding at least 95% of clients’ digital assets in cold wallets.
However, the former SEC official believes that US securities rules need more protection than Japan’s. He also disagrees with Cuban about the need for a new regulatory framework for cryptocurrencies.
“I don’t want to integrate the systemic risk of crypto into the US financial market, especially US banks.”
In addition, Stark argued that the SEC was proposing changes to several regulations, namely Rules 3b-16 of the Securities Exchange Act, Regulation ATS, and Regulation SCI, that would provide greater clarity for players.
John Reed Stark’s concerns about CBDC and crypto regulation
In a series of tweets, John Reed Stark, who now manages his Washington, DC-based consulting firm, expressed doubts about central bank digital currencies (CBDCs) and cryptocurrency.
Stark labels many virtual assets as unnecessary and risky financial ideas. He noticed,
“What is so incredibly disturbing is that under the auspices of ‘innovation’ some politicians will preach the gospel of crypto, not only completely ignoring crypto’s terrible externalities, but also failing to understand that crypto is not innovative at all.”
Despite the recent bankruptcy of banks such as SVB and Signature, Stark continued to support regulated companies. Stark thinks crypto companies don’t offer insurance, government oversight, consumer protection, or mandatory cybersecurity standards, among other things.
Moreover, he added: “First of all, like crypto and stablecoins, you have to start by answering the question of what problem a CBDC actually solves.”
Clashes of viewpoints
Stark argues that conventional financial institutions, such as banks, play an important role in defending the SEC from accountability for recent crypto disasters. He argued, “But respectfully, blaming the SEC for dumpster fires like FTX/BlockFi/Celsius/Voyager/Terra/EARN (via Gemini) and other appalling crypto frauds seems a bit over the top.”
Several market participants have already accused the SEC of failing to protect the industry despite its enforcement actions. Cuban has argued in the past that the SEC’s public stance on cryptocurrencies often conflicts with the proposed framework.
In this regard, Stark explains, “The SEC has been saving millions, maybe even billions, from investor crypto losses.” Stark supports SEC action by taking the cases of SEC action against investor fraud on Telegram. He also notes the $100 million action against BlockFi and stopping Coinbase from offering loan products.
He argued, “Should the SEC ignore securities violations just because their perpetrators disguised their products as ‘innovation’ and technological transformation?”
Cuban claims crypto regulatory clarity is essential for businesses to thrive.
On the other hand, Stark claims that the cryptocurrency business regularly challenges specific regulatory laws. Striking a balance between innovation and investor protection remains a difficult regulatory task.
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