Was SEC’s Gary Gensler right about cryptocurrency?
There is a real storm going on in the crypto industry right now. All because of the statements of SEC Chairman Gary Gensler about cryptocurrency, staking and lack of clarity in their classification.
The trend of regulating cryptocurrencies is spreading around the world. In Europe, MiCA law is under development and the emphasis is on stablecoins. In the US this process is led by agencies like FSB, different regulatory initiatives by Congress, and discrete actions by SEC and CFTC. In this regard, it is interesting to observe the position of one of the key people in US crypto politics, the Chairman of SEC, Gary Gensler.
Gary Gensler always insisted that the cryptocurrencies, in their majority, are securities. In a recent interview with New York Magazine, he emphasized his point by contrasting them to Bitcoin:
“Everything other than bitcoin [is a security] <…> you can find a website, you can find a group of entrepreneurs, they might set up their legal entities in a tax haven offshore, they might have a foundation, they might lawyer it up to try to arbitrage and make it hard jurisdictionally or so forth. <…> They might drop their tokens overseas at first and contend or pretend that it’s going to take six months before they come back to the U.S. <...> But at the core, these tokens are securities because there’s a group in the middle and the public is anticipating profits based on that group.”
Why is this important? Two US agencies, SEC and the Commodity Futures Trading Commission (CFTC) have been arguing since 2016 about the classification of cryptocurrencies. If crypto assets are considered securities, then the risks are similar to other investments and they fall under the jurisdiction of the SEC. Otherwise, if they are considered commodities, then most of the regulatory risks are in trading practices and fall under the CFTC expertise. So according to Gary Gensler Bitcoin should be regulated by CFTC, and everything else by SEC. It is noteworthy to mention that Gary Gensler was also the head of CFTC from 2009 to 2014, so he perfectly understands the roles of both organizations.
The crypto community is vigorously discussing the SEC’s activities and Gary Gensler’s role, in particular. The reaction has been mostly negative on Twitter. However, this platform doesn’t represent all opinions.
An interesting point was made by Jake Chervinsky, Chief Policy Officer at Blockchain Association, who said that it would be impossible to ban all crypto through the court.
Chair Gensler may have prejudged that every digital asset aside from bitcoin is a security, but his opinion is not the law. The SEC lacks authority to regulate any of them until and unless it proves its case in court. For each asset, every single one, individually, one at a time.
— Jake Chervinsky (@jchervinsky) February 26, 2023
In this regard, we can ask ourselves whether the lack of regulation of crypto trading or that of crypto investing has led to the recent crypto crisis? Just think about where you personally lost more money. If the answer is trading and exchanges, then maybe cryptocurrencies should still be regulated by the CFTC, if it’s worthless tokens and DeFi projects that promised unrealistic gains, then probably, Gary Gensler is right. In our observation there is a need for both agencies‘ expertise here.
Members Discussion