The United States House Financial Services Committee has grilled the SEC’s chair Gary Gensler today at an ongoing hearing on regulating emerging technologies, including cryptocurrencies and artificial intelligence (AI).
Asked by chairman Patrick McHenry whether Bitcoin is a security, Gensler replied that he and prior chairs have said it does not meet the Howey Test that defines securities under US law.
However, when asked if that meant Bitcoin was a commodity, Gensler dithered and stated that Bitcoin is not a security but that “the test is otherwise for other laws” regarding its labelling.
During the testimony, McHenry also criticised Gensler for his lack of transparency around interactions with the controversial FTX exchange and its founder, Sam Bankman-Fried.
SEC and crypto
Ahead of the hearing, Gensler released his opening remarks. He outlined the SEC’s broader regulatory oversight within the United States. The SEC chair stated his focus on two significant areas of emerging technology: predictive data analytics and cryptocurrencies.
The key message he aims to convey is that investors and issuers participating in “crypto asset securities markets” should receive the same level of protection as traditional securities markets.
Gensler pushes hard stance on cryptocurrencies
In his opening statement, Gensler said that the crypto industry at large has demonstrated “wide-ranging noncompliance with the securities laws”, which has caused various enforcement actions from the commission.
To address these concerns, Gensler points to the SEC’s efforts in the realm of rulemaking, emphasising that most cryptocurrencies likely fall under the category of investment contracts as per the 1933 Securities Act.
The Securities Act’s definition of a security includes a comprehensive list of over 30 items, with “investment contract” among them.
“As I’ve previously said, without prejudging any one token, the vast majority of crypto tokens likely meet the investment contract test,” Gensler said in his opening statement.
The SEC has recently pursued legal actions against major players like Coinbase and Binance for allegedly operating as unregistered securities exchanges.
The commission is also actively seeking to overturn the Ripple decision from earlier this year, which dealt a significant win to the XRP issuer.
However, Gensler explained: “While I’m happy to discuss the SEC’s work, I will not be able to comment on any active, ongoing litigation.”
Lawmakers argue for Bitcoin ETF approval
In the lead up to this hearing, four United States Congress members have made a public request to SEC chair Gary Gensler. They are urging him to “immediately” approve the listing of spot Bitcoin ($BTC) exchange-traded funds (ETFs). This move is a direct challenge to the SEC’s previous stance on cryptocurrency ETFs.
The SEC recently suffered a significant setback when a federal court overturned its decision to block the Grayscale Bitcoin ETF. In their letter, representatives Mike Flood, Wiley Nickel, Tom Emmer, and Ritchie Torres accuse the SEC of “discriminating against spot bitcoin exchange-traded products”.
The commission argued that the Grayscale court decision set a legal precedent and highlighted the SEC’s inconsistency in approving investment vehicles tied to Bitcoin futures.
The four lawmakers, all members of the committee, said that there is “no reason to continue to deny” spot cryptocurrency ETF applications, especially in light of the Grayscale court decision.
Gensler concluded his opening statement saying: “Though we are blessed with the largest, most sophisticated, and most innovative capital markets in the world, even a gold medalist must keep training.”