In a meeting, scheduled for September 27, 2023, the chairman of the US Securities and Exchange Commission (SEC), Gary Gensler, provided an outline of his vision regarding the regulation of cryptocurrencies.
According to Gary Gensler, the main point to be raised is the inclusion of cryptocurrencies under US securities laws. When these laws were designed in the 1930s, the US Congress decided on a broad approach that encompassed a variety of financial instruments under the heading of “investment contract”. In the view of the SEC president, most digital currencies fit this term and, therefore, must be subject to the stipulated rules.
The issue is not just limited to cryptocurrencies themselves. Gensler has taken up the issue that, if these are regulated, intermediaries in the world of cryptos must also be aligned with compliance. This means that exchanges, brokers and dealers must register or at least conform to the exemption requirements as set forth in sections of the Securities Exchange Act of 1934.
The SEC president’s concern is clear when it comes to the lack of compliance in the cryptocurrency industry. He drew a parallel to the pre-securities law financial landscape of the 1930s and emphasized the need for enforcement actions to protect investors. Furthermore, Gensler was optimistic when mentioning the SEC’s proactive role in regulation, citing recent clarifications on the application of rules to cryptocurrency platforms and decentralized financial systems (DeFi).
The SEC president made a point of highlighting that the commission’s proposal to update custody rules would benefit the entire crypto asset market, reinforcing the security of qualified custodians.
Gary Gensler in the US Congress, September 27, 2023
One of the most tense moments was when Patrick McHenry, chairman of the House Financial Services Committee, requested Gensler’s position on whether bitcoin was considered a security. The SEC president’s response was firm: bitcoin does not meet the Howey Test, a reference in the American legal system to determine whether a transaction can be considered an investment contract.
However, not all dialogues were smooth. Rep. Tom Emmer accused Gensler of taking an overly strict stance on crypto, claiming it could negatively affect innovation in the country. According to Emmer, the SEC president would be more focused on consolidating his authority than truly understanding and supporting the crypto ecosystem.
In the middle of the hearing, a peculiar question came to light: if a tokenized Pokémon card were sold on a digital exchange, would it be considered a security? Gensler, showing caution, mentioned that he would need more information to respond.
Another major concern is related to Bitcoin ETFs. Lawmakers want to know why the SEC hasn’t greenlit these products yet. Gensler, however, maintained a reserved stance, indicating that the agency is still evaluating the situation.
Given all these challenges and questions, it is clear that the regulatory journey of cryptocurrencies in the US still has many chapters to be written. And, without a doubt, Gary Gensler will be at the center of this narrative, seeking a balance between investor protection and innovation.
The views and opinions expressed by the author, or anyone mentioned in this article, are for informational purposes only and do not constitute financial, investment or other advice. Investing or trading cryptocurrencies carries a risk of financial loss.