Gensler Confirms Crypto Is One Of The SEC's Many Focuses

September 15, 2021 03:30 PM
Crypto Story of the Day

Crypto Story of the Day




The Top 10 was up this morning with DeFi tokens UNI, AAVE, COMP and SUSHI outperforming. BTC and ETH spot volumes are below their 30-day average.

Crypto Story of the Day

SEC Chairman Gary Gensler testified in the U.S. Senate and affirmed that the regulator has broad ambitions for bringing the crypto space in line with U.S. financial regulations.

In Gensler’s opening remarks, the Chairman defined crypto as one of the SEC's several focuses. Gensler began by reiterating his view that large parts of the crypto space are “not operating within regulatory frameworks…” and that the “asset class is rife with fraud, scams, and abuse in certain applications.” 

Gensler called on “platforms and projects” to “come and talk with [the SEC]” and reiterated that exchanges are highly likely to be offering coins that qualify as securities. Responding to a question from Sen. Pat Toomey regarding whether or not stablecoins qualify as securities, Gensler responded “they may well be securities.” Toomey responded that he doesn’t agree, adding that “we need clarity” on which cryptocurrencies qualify as securities.

Sen. Elizabeth Warren, who has expressed reservations towards the crypto space previously, began her questioning by asking Gensler rhetorically if crypto is an improvement on financial inclusivity compared to traditional banking services. Warren added that “last Tuesday the crypto market tanked once again” while a number of exchanges suffered downtime. 

The Senator described a hypothetical scenario in which she can’t sell an asset on Coinbase due to an outage and asked “so was there anything I can do to get my money out?” Gensler responded, “not at a federal level because they haven’t registered with us, even though they have dozens of tokens that may be securities.” 

Warren followed up with another hypothetical where a user can’t sell a token on an Ethereum-based DeFi venue due to high fees. Gensler responded that this is something that would exist in a “user agreement” and that DeFi venues are decentralized “in name only.” In further exchanges with Warren, Gensler described crypto as a “highly speculative asset class” which hasn’t contributed to financial inclusion. 

Following the hearing, in exclusive remarks to crypto news outlet The Block, Gensler said that crypto lending and staking are likely to fall under the scope of U.S. securities laws. Gensler told The Block that lending and staking via an exchange involves transferring ownership to the venue and taking on counterparty risk in return for a yield. “That takes on all the indicia of what Congress is trying to protect under the securities laws,” according to Gensler. 

Kraken and Coinbase both currently offer Ethereum staking services, offering users yields in return. 

While Gensler made a number of remarks that mostly rehashed previous public statements, some of the Chairman’s points seem to have been made for the first time. For example, Gensler’s assertion that stablecoins may be securities is new. Secondly, the direct invocation of Coinbase and directly alleging the venue is offering unregistered securities is also new. Finally, Gensler hasn’t previously opined on the securities laws implications of staking. 

Having said that, prior to today Gensler has made it clear that he believes large swathes of the crypto space have yet to be brought in line with regulation and has taken an expansive view of the SEC’s potential role in regulating the space. Gensler remains committed to ensuring that large parts of the crypto market don’t remain outside the purview of U.S. regulators and has positioned himself to spearhead that effort.

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