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May 22, 2023 at 12:13 PM
What You Need to Know
- SEC Chairman Gary Gensler criticizes the crypto industry as a risk to investors but has not stepped up to regulate it.
- In a congressional hearing, he could not answer a question on whether ether was a security.
- Coinbase is weighing a move out of the U.S. and other major crypto players will likely do the same if the SEC can't figure out sensible crypto regulation.
As if staying informed isn’t challenging enough in today’s 24/7 world, where politics and money have fused, we have an additional topic we must now track daily: digital assets. It represents the next era of finance, and will revolutionize how we create, store, grow and transmit money.
Some people don’t like that idea, however. And one in particular seems determined to prevent that future from becoming reality. Ordinarily, a single person’s disdain is of limited consequence — but not when that person chairs the U.S. Securities and Exchange Commission.
Over the past few months, SEC Chairman Gary Gensler has made it clear that he opposes the views of hundreds of millions of people worldwide who believe that crypto can deliver a fast, safe, transparent and inexpensive way to manage and move money.
He ignored the fact that investors, endowments, pension plans, institutions and governments have created a new asset class that’s worth more than $1 trillion. Instead, if Gensler gets his wish, this asset class will be shut down, and all those investments made worthless.
In a recent Twitter video, Gensler reiterated his stance that most crypto assets are securities and thus must comply with both securities laws and SEC regulations.
His use of a cartoonish animation that compared a goldfish to a dog was condescending, and an insult to the viewer’s intelligence. Crypto is a $1 trillion asset class; 22% of U.S. adults own bitcoin.
Eighty-one percent of institutional investors say digital assets should be a part of a diversified portfolio, and blockchain-related companies employ tens of thousands of people throughout the U.S. in high-paying jobs. Hundreds of prominent Wall Street executives, attorneys and former government officials have left their positions to enter the crypto field.
To deride their professionalism with a childish reference to a dog and a goldfish is a demeaning attempt to trivialize an incredibly important conversation.
In his video, Gensler also said, “Whether they’re exchanges, brokers, dealers, clearinghouses — they need to comply with the securities laws and register with the Securities and Exchange Commission.”
He’s right about that, of course. But what he failed to say is that many companies have been trying to do exactly that: register. But the SEC keeps rejecting their applications! He can’t have it both ways. He can’t criticize crypto companies for not registering when refusing to let them do so.
Gensler also stated, “Lack of compliance by these crypto platforms means that you don’t have basic investor protections.” If that’s true, it’s his fault.
Last year, Axie Infinity was hacked and investors lost $625 million. Did the SEC prevent that? Did the SEC protect anyone when Terra Luna collapsed last year, wiping out $60 billion? How about when the crypto hedge fund Three Arrows Capital failed, losing half a billion dollars? Or how about when Voyager Digital or Celsius or BlockFi or FTX … all collapsed.
All we’re getting from the SEC is a Twitter video about goldfish.
Gensler also criticized the fact that “many crypto platforms combine the activities of an exchange, broker-dealer and clearing house under the same roof.” That can’t happen in the stock market — and the fact that it can happen in the crypto market proves that we need new regulations for crypto, despite Gensler’s claims that no new regulations are needed.
Gensler’s position is so illogical that he can’t even defend it when asked. Consider the following exchange between him and Patrick McHenry, R-N.C., chair of the House Financial Services Committee, at an April hearing:
PATRICK McHENRY: Back in 2018, then SEC Corporation finance director Bill Hinman stated that he believed ether was not a security. Last month, CFTC Chair Rostin Benham expressed his view that ether is a commodity. The state attorney general of New York asserted in a court filing last month that ether is a security. Clearly, an asset cannot be both a commodity and a security. Do you agree?
GARY GENSLER: Actually all securities are commodities under the Commodity Exchange Act … But I would agree that a security cannot be also an excluded commodity and an included commodity. I’m sorry, Chair, just to talk about the Commodity Exchange Act more precisely.
Okay. So do you recognize … how would you categorize ether then?
I think that the general sweep of what Congress did, not just in the 30s, but as amended …
I’m asking you, sitting in your chair now to make an assessment under the laws as exist is ether a commodity or a security?
Without speaking to any one …
