Remember those crypto Super Bowl ads? Here's why they still matter: Morning Brief

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If you buy an advertisement during the Super Bowl, you will get millions of eyeballs. But some of those eyeballs will likely belong to federal regulators.

Which brings us to Securities and Exchange Commission Chair Gary Gensler on Monday (yes, two months later), responding to the flurry of crypto ads from this year's game.

“Seeing these ads reminded me that, in the lead-up to the financial crisis, subprime lender AmeriQuest advertised in the Super Bowl. It went defunct in 2007,” Gensler said at a Penn Law event.

That is not a very flattering comparison from Gensler, Wall Street's top cop. (Fun fact: Gensler is a Ravens fan who once brokered a deal for the NFL’s television rights during his Goldman Sachs days.) Gensler later said he was considering a “number of projects” to better regulate the crypto space, such as segregating crypto trading platforms from market making functions.

In English: Cryptocurrency trading platforms like FTX and Coinbase (remember the Larry David and QR code Super Bowl ads?) could not do any side trading in the same tokens listed on their platforms. If users can buy bitcoin on a platform, that platform cannot take the other side of that trade itself.

Such a rule (which would take forever to implement) would not sink FTX, which raised funds earlier in the year at a firm valuation of about $32 billion.

Sam Bankman-Fried, CEO of FTX and FTX US, told Yahoo Finance Tuesday that the SEC is taking a “pretty compelling stance,” suggesting that crypto trading platforms would be just fine without simultaneously operating as a dealer.

“I don’t think I’m sort of a radical on this or a purist,” Bankman-Fried said.

The scale has already been built for the likes of FTX, which has attracted a large enough user base to be able to afford Super Bowl ads in the first place. 

Aside from the millions of dollars it cost the firm to create and air the ad, the company inked a $135 million, 19-year deal for the naming rights to the Miami Heat’s home arena.

This underscores the fact that cryptocurrency regulation is playing catch-up with technology that’s already reached the masses. 

For Gensler, the challenge lies in balancing regulation that protects investors without cracking the infrastructure that’s already been built.

Crypto exchanges acknowledge this too. FTX announced a “strategic investment” into IEX (of Michael Lewis’ “Flash Boys” fame) on Tuesday, which brings the regulatory expertise of IEX’s experience operating in the more mature world of equities trading.

“There are parts of the equities market, as a regulated market, that we think port over to digital assets,” IEX CEO Brad Katsuyama told Yahoo Finance. “And I think there are certain parts of the equity market structure you don’t want to replicate.”

So it looks like the expensive Super Bowl ads are doing what they're supposed to do for these crypto companies: drawing attention and growing their user bases. But when the regulators come knocking, those same companies have to be ready to play ball.

By Brian Cheung, an anchor and reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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