In the realm of crypto, despite a series of recent legal setbacks, Gary Gensler, Chair of the United States Securities and Exchange Commission, remains resolute that the SEC should be the primary regulator. Gensler’s unwavering commitment will come into focus as he readies himself to speak before the Senate Banking Committee on September 12.
In the past two months, the SEC faced significant setbacks, with defeats against crypto industry giants Grayscale and Ripple, both seen as substantial blows to the regulatory body. However, Gensler is not deterred and intends to emphasize his belief that digital assets are, indeed, securities that should fall under the SEC’s purview.
The Senate hearing’s primary focus is the SEC’s oversight in specific matters related to the crypto industry. In his prepared testimony, Gensler draws parallels between the current crypto landscape and the unregulated chaos of the 1920s before the federal securities laws were established. He argues that widespread noncompliance with securities laws has led to numerous issues in the crypto markets.
Continuing his consistent stance, Gensler asserts that the Howey test, a legal benchmark for determining whether an asset qualifies as a security, is met by the vast majority of virtual tokens. He firmly states, “The vast majority of crypto tokens likely meet the investment contract test.” This viewpoint naturally leads to his conclusion that most digital asset intermediaries must also adhere to securities laws.
Grayscale Saga: SEC’s Second Crypto Defeat Raises Questions
The SEC’s first major legal defeat came on July 13 when Judge Analisa Torres partially ruled in favor of Ripple, stating that the sale of XRP tokens to retail consumers did not violate federal securities laws. Although the SEC is pursuing an appeal, this decision is expected to be cited by other crypto companies facing lawsuits from the regulator.
The SEC’s second major loss occurred on August 29 when a judge declared the SEC’s rejection of Grayscale’s request to convert its Bitcoin Trust into a Bitcoin exchange-traded fund as “arbitrary and capricious.” These high-profile losses have encouraged blockchain-based payments network LBRY to file an appeal against its own securities law violation ruling, signaling its commitment to fight the SEC’s decision rather than winding down.
Gensler’s steadfast determination to assert the SEC’s regulatory authority over the digital asset industry remains undeterred, despite recent legal defeats. As the crypto industry and regulators continue to grapple with defining and regulating digital assets, the upcoming Senate Banking Committee hearing promises to be a crucial moment in shaping the future of crypto regulation in the United States.