Washington wakes up to investment risks fueled by Covid as crypto, PSPCs book
The intensification of scrutiny comes after Bitcoin suffered a 30% drop at some point on Wednesday. A market index related to PSPC is down more than 30% from February.
“These are just new creations that we don’t fully understand,” Senator Thom Tillis (RN.C.) said in an interview. “We should probably ask ourselves whether or not Congress should play a regulatory role.”
The fact that the hottest investment follies of the Covid-19 era are only now attracting intense scrutiny shows that policymakers still face the risks consumers face as the economy struggles to emerge from it. the pandemic. After policymakers in Washington fueled stock valuations by handing out trillions of dollars to companies and individuals, attention turns to how investors might be affected as the market stabilizes.
Wall Street watchdogs say they are relieved to finally see action in Congress after warning for months of looming risks. They say the developments illustrate the dangers of regulators’ hands-off stance in markets during the Trump administration.
“When PSPCs, cryptocurrencies, and stocks themselves had valuations that were all heading for the moon, there weren’t a lot of kicks on the real risks for investors, but now that some of the risks are coming in. turn into losses, we expect a lot more emphasis on Congress and regulation, ”said Tyler Gellasch, executive director of investor advocacy group Healthy Markets.
Lawmakers watched the market frenzy during the pandemic as retail investors rushed to pump additional cash – including government stimulus checks – into new products in hopes of reaping big returns. In response, several cryptocurrencies have skyrocketed, with Bitcoin rising from around $ 10,000 before the pandemic to nearly $ 63,000 in mid-April, an increase of over 500%.
By the end of the first quarter of 2021, PSPC’s IPO activity had already surpassed all of 2020, the year that investment vehicles first occupied around half of the news market. public company listings, in terms of transactions and dollars raised. This resulted in the creation of more than 570 new shell companies between January 2020 and May 2021, with the right to buy shares of future companies worth more than $ 140 billion in the country’s public capital markets. .
But after new retail investors flooded the markets, the outlook for commodities deteriorated this month. Along with the fall in Bitcoin prices, other major cryptocurrencies have seen double-digit declines this week. The market has also proven to be a boon for fraudsters, with the Federal Trade Commission warning this week that since October, nearly 7,000 people have reported losing more than $ 80 million due to bogus cryptocurrency investments.
“We learned in 2007-2008 that when new financial instruments emerge, it is prudent to assess how the risk spectrum may change,” said Sen. Jon Ossoff (D-Ga.), Another member of the banking committee . “Regulators need to be nimble and it is important that they have the authority to ensure financial market stability where technology and new financial instruments mean they have to adapt.”
The decline in PPCS was also significant, with companies accounting for $ 88 billion of proceeds from global equities raised in the first quarter of this year, up from $ 4 billion a year ago. But only 12 of those shells actually reached the goal of listing a private company in the United States in April, up from 107 in March, according to an analysis by S&P Global Market Intelligence.
For digital currency in particular, the growing scrutiny is raising doubts about a push for lobbying by major industry players to convince policymakers that crypto investing is safe and should be accessible to more investors.
The industry is pushing federal regulators for charters and other approvals in an attempt to give more Americans the ability to trade digital currency and related products.
On Wednesday, Brown urged a senior banking regulator appointed by the Biden administration to end regulatory measures that make it easier for cryptocurrency companies to operate nationally. In a letter to the agency, the Office of the Comptroller of the Currency, Brown cautioned against granting federal charters to companies that wish to expand access to “risky and unproven” digital assets and technologies.
Brown “understands that Wall Street and other bad players are treating the market like a game where workers always lose,” said Alysa James, spokesperson for the senator. “The Great Recession showed how new financial products that promise innovation often hurt working families the most. We saw it again during the pandemic.”
SEC Chairman Gary Gensler told an event on Thursday that lawmakers should consider new rules, and regulators in particular should be prepared to file crypto lawsuits.
“This is a fairly volatile asset class – you could say very volatile -” Gensler said. “The investing public would benefit from greater investor protection on crypto exchanges.”
The rise of PSPCs is attracting competing reform proposals on both sides of the aisle.
A bill introduced by Kennedy last month would force the SEC to write new rules for PSPCs, following numerous red flags recently issued by the agency. Kennedy’s proposal would require investment vehicles to disclose more information to investors, given concerns that corporate promoters can often extract large fees that dilute the value of shares.
“There is no free lunch, and you don’t have one now,” Kennedy said in an interview. “I understand the concept behind PSPC and the idea that it’s supposed to be cheaper than a traditional IPO. And that can be the case on the front end. I’m not convinced that’s the case at the rear. “
Rep. Brad Sherman (D-California) unveiled a bill on Thursday this would also update the rules for PSPCs. Sherman produced the bill ahead of Monday’s PSPC oversight hearing which he will lead as chair of the House financial services subcommittee overseeing financial markets and investor protection.
“I would be flabbergasted if we looked at this area and saw that there was no problem worthy of our attention,” Sherman said.
Business groups are starting to back down.
The trusted crypto banks targeted by Brown this week have spoken out in defense of their business models. Paxos, which is behind the recent move by payments giant PayPal to allow customers to buy, hold and sell cryptocurrency, said “has sought to be the most regulated, compliant, and trusted operator in the crypto and blockchain infrastructure industry. “
On the PSPC front, the U.S. Chamber of Commerce is concerned about a provision in Sherman’s Bill that would remove legal protections that would allow front company promoters to avoid legal action for statements they make on a PSPC front. future business while promoting a deal.
“We believe both Congress and the SEC have a very important role to play with both cryptocurrencies and PSPCs,” said Tom Quaadman, executive vice president of the US Chamber Center for Capital Markets Competitiveness. But removing legal protections for PSPCs would spark opposition in the House, he said.
But even lawmakers like Tillis, who say they prefer lighter regulation, argue it’s time for officials to take a closer look at how investors behave in new markets.
“We need to really fairly assess the winners and the losers, the reasons for the wins and the losses, and then determine to what extent we need to play a role,” he said. “So I’m not predisposed to regulation, but I really think it requires monitoring and then action after monitoring.”