Generally, people who buy cryptocurrencies do not get the disclosures they get when they make other asset purchases around things like whether the trading platform they are using is actually trading against them, or whether they actually own the assets they store in digital wallets, Gensler said.
"We have this basic bargain: You the investing public can make your choices about the risk you take, but there is supposed to be full and fair disclosure, and people are not supposed to lie to you," he said at the Financial Industry Regulatory Authority's annual conference in Washington.
His comments came after last week's spectacular collapse of TerraUSD, a so-called stablecoin that lost its 1-to-1 dollar peg.
The token's crash sent cryptocurrencies tumbling, a slide that resumed on Monday, as bitcoin erased the gains it had eked out over the weekend to trade under $30,000, far below its Nov. 10 record of $69,000.
While crypto markets are thought of as decentralized, the reality is that most activity occurs on a handful of trading platforms, which, along with token issuers, need to work with the SEC to improve industry rules and disclosures, Gensler said.
He pointed to basic market principles like, "anti-fraud, anti-manipulation, making sure there's not front-running, making sure an order book is actually real and not made up."
The SEC will continue to be "a cop on the beat," while working with the Commodity Futures Trading Commission to ensure all cryptocurrencies are covered, Gensler said.
"There's a lot to be done here, and in the meantime the investing public is not that well protected," he said.
(Reporting by John McCrank; editing by Jonathan Oatis)
By John McCrank