September 14, 2021

Warren to SEC Chair at Hearing: Regulators Need to Step Up to Address Crypto’s Regulatory Gaps and Ensure an Inclusive Financial System

Video of Hearing Exchange (Youtube)

Washington, D.C. - At today's Senate Banking, Housing, and Urban Affairs Committee hearing, United States Senator Elizabeth Warren (D-Mass.) argued that high and unpredictable fees in crypto present severe risks to investors who have the least money to lose.

In response to her questions about fees on “decentralized” crypto exchanges and whether they present a path to greater financial inclusion, U.S. Securities and Exchange (SEC) Commission Chair Gary Gensler told Senator Warren that “it doesn’t sound like the path” to a more inclusive financial system and instead serves as a “highly speculative asset.” 

Senator Warren concluded: “Regulators need to step up to address crypto’s regulatory gaps and ensure that we’re actually building the inclusive financial system that we need. And Chair Gensler, I expect you and the SEC to take a leading role in getting this done.”

Transcript: Oversight of the U.S. Securities and Exchange Commission
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Tuesday, September 14, 2021 

Senator Warren: Thank you, Mr. Chairman. We hear a lot about how crypto is all about financial inclusion—a way for people who don’t have a lot of money to be able to manage it or invest it. Now, the banks have done a pretty lousy job on financial inclusion, so I want to test out with you whether or not crypto is an improvement.

Last Tuesday, the crypto market tanked once again. The prices of Bitcoin and Ether each fell by about 10 percent, while a bunch of other tokens failed by as much as a third. So, in a matter of hours, $400 billion in market value disappeared. Poof! Just gone!  And meanwhile, several of the biggest crypto exchanges had outages, which kept customers from making withdrawals or trades.

So how did that affect people who don’t have a lot of money to lose?

Chair Gensler, let’s say that last Monday, I took out the last sliver of my savings. I went on the crypto exchange Coinbase. I bought $100 worth of Ether. Then I woke up early Tuesday morning, I saw that the market looked like it was beginning to tank, and I thought, “I better sell right now.” But when I tried to sell, Coinbase, the exchange was down.

So, Chair Gensler, was there anything I could do to get my money out? 

Chair Gensler: Not at a federal agency because they haven’t yet registered with us even though they have dozens of tokens that may be securities.

Senator Warren: Yeah. Okay. So that sounds pretty risky to me. But let’s say that instead of buying Ether on Coinbase last Monday, I decided instead to put that $100 toward buying a cool new token – let’s call it “New Coin” – that was being hyped on Twitter.

Now, New Coin is available only on a quote-unquote “decentralized” crypto exchange, so to buy it, I had to pay a fee – about 20 bucks – to the crypto miners who processed the transaction. That’s $20 to buy $100 worth of tokens, but I figured that was okay because Twitter told me that New Coin was going to make me a lot of money.

But then, of course, I woke up on Tuesday morning, and the market was tanking.

So let's ask about this one. Chair Gensler, on Tuesday when I wanted to sell New Coin and get back to dollars fast, that exchange had not shut down, but remember I had to pay $20 on Monday to get into decentralized finance. So how much would I have had to pay to get out of defi on Tuesday to sell my coins? Would I have had to pay a second $20 fee or might I have had to pay even more?

Chair Gensler: I don’t know because it'd be all in the user agreement, and by the way, you put quotes around defi. I think that's helpful because they really decentralized a name only. There's a lot of user to user agreement. There's something you're doing with this platform. There's a governance token. There's usually some fees. But I don't know what the particular fees would be.

Senator Warren: Well, actually we do know some of the fees from last Tuesday. The fee to swap between two crypto tokens on the Ethereum network was more than $500 – obviously way more than the $100 I was trying to trade in the first place. So, the question I have is in the face of these high, unpredictable fees, small investors could easily get jammed and wiped out entirely.

Chair Gensler, advocates say crypto markets are all about financial inclusion, but the people who are most economically vulnerable are the ones who are most likely to have to withdraw their money the fastest when the market drops. Does this sound like the path to financial inclusion to you?

Chair Gensler: It’s a highly speculative asset class. It doesn’t sound like the path that you mentioned.

Senator Warren: You know, there are a whole list of problems with crypto – unreliable tech, scams, devastating climate impact. But high, unpredictable fees can make crypto trading really dangerous for people who aren’t rich.  

Regulators need to step up to address crypto’s regulatory gaps and ensure that we’re actually building the inclusive financial system that we need. And Chair Gensler, I expect you and the SEC to take a leading role in getting this done.

Chair Gensler: Thank you.

Senator Warren: Thank you.