During the hearing in the Senate, Gensler will likely draw parallels between the current crypto ecosystem and the 1920s stock market.
US Securities and Exchange Commission (SEC) Chair Gary Gensler is gearing up to reaffirm the agency's regulatory authority over cryptocurrencies in an upcoming Senate hearing on September 12th.
Gensler plans to present his views to the Senate Banking Committee, emphasizing that cryptocurrencies should be considered securities and fall under the purview of the SEC.
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The upcoming hearing will focus on various aspects of the SEC's oversight. In his prepared testimony, Gensler makes clear comparisons to the regulatory landscape before the federal securities laws were enacted in the 1920s.
Given this industry’s wide-ranging noncompliance with the securities laws, it’s not surprising that we’ve seen many problems in these markets. We’ve seen this story before.
Gensler will also argue that the majority of cryptocurrency tokens likely meet the criteria set by the Howey test, a framework that helps determine if an asset is a security.
The vast majority of crypto tokens likely meet the investment contract test. Given that most crypto tokens are subject to the securities laws, it follows that most crypto intermediaries have to comply with securities laws as well.
Recent court rulings have, however, posed challenges to the SEC's regulatory stance. On July 13th, Judge Analisa Torres ruled partially in favor of Ripple, finding that its XRP tokens sold to retail consumers did not breach federal securities laws. While the SEC is appealing this verdict, the decision could serve as a precedent for other crypto companies facing legal actions from the regulator.
The SEC also suffered a setback on August 29th against Grayscale, with the judge terming the SEC's denial of Grayscale’s Bitcoin Trust conversion into a Bitcoin ETF as "arbitrary and capricious."
This string of legal wins for the crypto industry has encouraged companies like LBRY to reverse its earlier decision to wind down operations. On September 7th, LBRY announced its intention to appeal a ruling that found it guilty of violating securities laws.
Gary Gensler's forthcoming Senate testimony reflects the SEC's unwavering stance on cryptocurrency regulation, notwithstanding the agency's recent losses in the courtroom. As the legal battles continue to unfold, it remains to be seen how the landscape for crypto oversight will evolve in the United States.
