US lawmakers grill SEC’s Gensler on his hawkish crypto stance
(Kitco News) US lawmakers tried to get to the bottom of Securities and Exchange Commission (SEC) chairman Gary Gensler’s definition of what separates Bitcoin from other cryptocurrencies.
During Thursday’s testimony before the US Senate Banking Committee, Gensler faced some pointed questions about what makes Bitcoin not a security, with some lawmakers wondering about the decentralization aspect. Gensler’s aggressive stance on cryptocurrency oversight excludes the world’s largest cryptocurrency.
The SEC has previously cited the Howey test to determine whether a crypto token is a security or not.
The test refers to US Supreme Court cases to determine whether a transaction constitutes an “investment contract” and should therefore be considered a security, often used for crypto. Under it, an investment contract is an investment of money by entrepreneurs in a joint enterprise with an expectation of profit from the efforts of others.
In the past, Gensler has stated that Bitcoin is not a security, while other SEC members have been quoted as saying that Ethereum is not a security either.
To better understand Gensler’s thinking, which is not yet clearly defined, lawmakers like Pennsylvania Senator Pat Toomey settled on the definition of “a joint enterprise.”
“Is centralization necessary to constitute a joint enterprise?” Toomey asked Gensler. Gensler replied, “Joint business [is when] you depend on a group of individuals.”
Bitcoin is different because there is “no group of individuals in the middle.”
Gensler avoided using the terms centralization/decentralization. SEC is looking for a joint venture, which can be a developer that bets and trusts people. “Even if a token is on a thousand computers, that’s it [more] about a group of developers in the middle,” Gensler explained.
Regarding crypto regulation more broadly, Gensler noted that if the US ends up with multiple federal agencies defining what security is, it will undermine the SEC’s goals.
“Of the nearly 10,000 tokens in the crypto market, I believe the vast majority are securities. The offering and sale of these thousands of crypto security tokens are covered by the securities laws, which require these transactions to be registered or made pursuant to an available exemption,” Gensler testified. “Given that most crypto tokens are securities, it follows that many crypto intermediaries—whether they call themselves centralized or decentralized (e.g., DeFi)—deal in securities and must register with the SEC in some capacity.”
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