Gensler Refuses To Call Ether A Security At Congressional Hearing

SEC Chairman Gary Gensler repeatedly declined to say whether Ether, the world’s second-largest cryptocurrency, is a security during a Congressional hearing Tuesday.

Gensler has previously said he believes Bitcoin to be a commodity such as gold or wheat, and the “vast majority” of other crypto tokens to be securities, a category that includes stocks and bonds.

The distinction has profound implications for the industry. Securities are subject to costly registration and reporting requirements. Moreover, some industry attorneys have argued there is no viable path to registration for crypto firms.

Gensler, meanwhile, maintains the laws are clear.

“I’ve been around finance for over 40 years in one way or another,” he said Tuesday. “I’ve never seen a field that’s so non-compliant.”

Miller Whitehouse-Levine, who heads the DeFi Education Fund crypto advocacy group, said Gensler’s appearance “underscores the thesis that [he] has made the policy choice to try and ban crypto in this country.”

Tuesday’s hearing marked Gensler’s first appearance before the House Financial Services Committee as chairman of the SEC. Gensler was previously chairman of the United States’ commodities regulator, the Commodity Futures Trading Commission, under the Obama administration.

Enforcement Actions

In a number of lawsuits, Gensler’s SEC has argued that many crypto tokens, including UST, LUNA, ALGO, DASH and TRX, are unregistered securities. Though it has yet to argue that Ether is a security, Gensler has previously said that tokens native to Proof-of-Stake blockchains, such as Solana, Cardano, and Ethereum, may be considered securities.

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The Defiant

Committee Chairman Patrick McHenry, a Republican from North Carolina, opened the hearing by repeatedly asking Gensler whether Ether is a security.

“It depends on the facts and the law,” Gensler said.

Whitehouse-Levine said Gensler’s refusal to answer McHenry “points to the disingenuousness of the SEC’s supposition that [the law] is perfectly clear.”

“The SEC for years and years and years has said that it’s perfectly clear for the markets,” Whitehouse-Levine said. “Yet seemingly it’s unclear for the SEC staff themselves where the line between a security and a commodity is.”

During a back-and-forth with California Democrat Maxine Waters, Gensler explained why he believes most crypto assets are securities.

“Is there a group of entrepreneurs in the middle that are working on that project, promoting that project, and have a website that the public looks to? Do they have Twitter accounts and handle and upgrade the software?” he said. “Is there somebody that’s … hiring lawyers and sending them in to talk to us?”

FTX Fraud

Other lawmakers pressed Gensler on the SEC’s failure to catch multibillion-dollar fraud at FTX, a crypto exchange based in the Bahamas. Former CEO Sam Bankman-Fried awaits trial, but other former executives at FTX and affiliated companies have pleaded guilty to fraud and other charges.

Representative Ritchie Torres, a Democrat from New York and crypto industry ally, asked Gensler why the SEC had threatened regulated, U.S.-based crypto firms such as Coinbase and Paxos with lawsuits, rather than overseas companies subject to less stringent oversight.

“It seems like your enforcement priorities ignore the lessons learned by the FTX failure,” Torres said.

Gensler said the SEC’s authority does extend to foreign firms that do business with Americans. But those cases are more time-intensive.

“It takes longer to build the investigative files. It takes longer sometimes in cooperation with offshore law enforcement authorities to pursue that,” he said. “And it is frankly more challenging to get subpoenas complied with.”

Not everyone was satisfied.

During a fiery speech, Representative Tom Emmer, a Republican from Minnesota, called Gensler an “incompetent cop on the beat.”

The committee will question several crypto experts at a hearing on stablecoins on Wednesday.