Gensler gets grilled in the House on SEC’s take on crypto

House Republicans grilled Securities and Exchange Commission Chair Gary Gensler over his agency’s handling of digital assets, especially a lack of clarity over whether or not ether is a security, stablecoins regulations and the agency’s handling of FTX.  

Appearing before the House Financial Services Committee on Tuesday, Gensler faced criticism from the outset of the hearing when the committee’s chairman questioned him about whether or not he views the cryptocurrency with the second-largest market capitalization, ether, as a security. Gensler responded with previous statements about the amount of digital asset projects and tokens in violation of securities law. 

“I’ve never seen a field that’s so non-compliant with laws written by Congress and affirmed over-and-over by the courts,” as digital assets, Gensler said. “We talk to the crypto firms about tokens and how they can register.” 

Chair Patrick McHenry grew exasperated with Gensler after repeatedly attempting to get him to weigh in on whether ether is a security or commodity. 

“Give me a break, come on,” said McHenry. “There’s a lack of clarity here, can you at least agree with that?” 

Gensler replied that securities laws are clear, and that the SEC enforces securities laws that require disclosures to investors on investment vehicles. 

In the ether

The status of ether in particular remains uncertain. Under the leadership of Gensler’s Republican predecessor, Jay Clayton, the SEC took a similar stance that almost all tokens are securities under longstanding laws, but said a small number of tokens might cease to be considered securities if they became broadly decentralized. 

A 2018 speech by a senior SEC official, speaking on his own views, said that ether had reached a threshold of being decentralized enough that he no longer saw the value in applying securities laws. The official, William Hinman, was willing to set aside whether or not its initial offering, which became a model for the 2017 initial coin offering boom that started greater SEC scrutiny of digital assets, violated the law. 

But Gensler has implied that ether, and any other proof-of-stake cryptocurrency, could be considered a security, seeming to disagree with those past views of senior commission officials on the world’s second-largest digital asset. 

Further confusing the matter, Commodity Futures Trading Commission Chair Rostin Behnam sees ether as a commodity falling under his jurisdiction, while New York Attorney General Letitia James declared ether an unregistered security in an enforcement action taken against the crypto firm KuCoin.

Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.

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