Gary Gensler, Chairman of the U.S. Securities and Exchange Commission (SEC), declined to say whether Ethereum (ETH), the leading altcoin by market capitalization, is a security during a nearly five-hour hearing on Tuesday. Here are the details…
SEC Chairman has not disclosed “securities” status of leading altcoin ETH
Throughout the hearing, Gensler discussed whether his agency was putting too much pressure on the proposed rules, providing little time for public feedback on those rules, how he approached crypto companies hoping to operate in the US, and proposed disclosure requirements regarding climate change and audit trails. He fends off questions about a number of non-crypto questions, including Gensler’s speech before the House Financial Services Committee on Tuesday was his first since the current Congress took office, and indeed in more than a year.
“Congress must provide clear rules of the road to the crypto-asset ecosystem because regulators cannot agree,” said Committee Chair Patrick McHenry in his keynote speech. Regulation through practice is not sufficient or sustainable. “Your approach drives innovation overseas and jeopardizes America’s competitiveness.” His colleague Maxine Waters spoke in a different tone, saying the session focused on Gensler despite more pressing issues such as the recent bank failures, the housing crisis and the potential debt ceiling default.
“I also want to applaud President Gensler and his team for the strong action taken by the SEC and for dedicating more resources to go after crypto criminals,” Waters said. One of the most controversial points in the session came when McHenry asked Gensler to say whether Ethereum, the second-largest cryptocurrency by market capitalization, is a security.
Gensler: Whether ETH is a security or not is up to the law
“In 2018, Bill Hinman, then SEC Corporation Finance Director, said he believed ETH was not a security,” McHenry said. He also pointed out that last month, CFTC Chairman Rostin Behnam expressed the view that altcoin ETH is a commodity, as we reported on Kriptokoin.com. The New York State Attorney General also claimed in a court filing last month that ETH is a security. “Obviously, an asset cannot be both a commodity and a security. Do you agree?” asked the question.
“It depends on the facts and the law,” Gensler repeatedly said during interrogation, refusing to say yes or no. Joshua Ashley Klayman, head of Fintech and Blockchain and Digital Assets at Linklaters, argued after the hearing that it was a positive sign for the industry that Gensler didn’t immediately say it was a security, or that “everything but Bitcoin” was a security. “This was the best we could hope for and provides some protection not only to ETH but to other cryptocurrencies as well,” he said.
Regulatory clarity remains lacking
Gensler’s response—or no response—to Congress’ questions outside of the hearing came up during Tuesday’s questioning. Congressman Bill Huizenga asked Gensler if the SEC would provide the staff memo recommending an enforcement action against FTX and Sam Bankman-Fried. “You are only responding to our FTX request with public documents… You have not given us anything regarding the charges against Sam Bankman-Fried,” Huizenga said.
Gensler said the investigative documents should be kept confidential, while Huizenga said he would follow up. Some lawmakers questioned Gensler about the perceived lack of regulatory clarity for crypto companies. Gensler told Congressman Brad Sherman that companies must “come in and comply and register to protect the investing public.” Congressmen Warren Davidson and McHenry said the regulator didn’t provide the clarity the industry really needed to do this. Davidson cited Gensler’s failure to provide a definitive answer as to whether ETH is a security or not.
According to some, there is a reasonable degree of clarity in the Bitcoin and altcoin space
Other lawmakers, such as Congressman Stephen Lynch, pointed to the SEC’s sanctions actions and recent guidance, as well as joint statements from various federal regulators, saying there was indeed a “reasonable amount of guidance and clarity,” although “not the clarity the crypto industry wants.” “My friends on the other side of the room seem to be complaining about the lack of regulatory clarity, and then they likewise criticize the SEC’s rule-making efforts,” Lynch said.
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