SEC Chairman Gensler refuses to say whether Ether is a security in controversial congressional hearings

US Securities and Exchange Commission Chairman Gary Gensler declined to say whether ether, the second-largest cryptocurrency by market capitalization, was a value during a nearly five-hour hearing on Tuesday.

During the marathon hearing, Gensler deflected questions about whether his agency pushed too hard on proposed rules, gave too little time for public feedback on those rules, how it approached crypto companies hoping to operate in the U.S. and a host. of non-crypto issues, including proposed climate change disclosure requirements and audit trails.

Gensler’s appearance before the House Financial Services Committee on Tuesday was his first since the current Congress took over, and indeed his first in over a year.

“Congress must provide clear rules for the path to the digital asset ecosystem because regulators cannot agree,” said committee chairman Patrick McHenry (RN.C.) in his opening statement. “Regulation by enforcement is not sufficient or sustainable. Your approach drives innovation abroad and jeopardizes American competitiveness.”

His counterpart, Ranking Member Maxine Waters (D-Calif.), took a different tone, saying the hearing was focused on Gensler despite more pressing issues, such as recent bank failures, a housing crisis and possible default on the debt ceiling.

“I also want to applaud Chairman Gensler and his staff for the strong actions the SEC has taken and dedicating more resources to going after cryptocriminals,” Waters said.

One of the most contentious points in the hearing came early, when McHenry asked Gensler to say whether he believed ether, the second-largest cryptocurrency by market capitalization, was a security.

“Back in 2018, then-CFO of the SEC Corporation, Bill Hinman, said he believed ether was not a security,” McHenry said. “Last month CFTC Chairman [Rostin] Behnam expressed his view that ether is a commodity. The New York attorney general argued in a lawsuit last month that ether is a security. An asset obviously cannot be both a commodity and a value. Do you agree?”

“It depends on the facts and the law,” Gensler said repeatedly during the line of questioning, refusing to say yes or no.

Joshua Ashley Klayman, Head of Fintech and Head of Blockchain and Digital Assets at Linklaters, argued after the hearing that it was a positive sign for the industry that Gensler did not immediately just say it was a security, or say that “anything but bitcoin” was a security.

“This was the best we could hope for and it gives some coverage to not only ETH but other cryptocurrencies as well,” she said.

Gensler’s responsiveness – or perceived lack of responsiveness – to Congressional inquiries outside the hearing came up during Tuesday’s questioning.

Congressman Bill Huizenga (R-Mich.) asked Gensler if the SEC would release its internal staff memo recommending enforcement action against FTX and Sam Bankman-Fried.

“You are responding to our FTX request solely with publicly available documents … you did not give us anything about the allegations against Sam Bankman-Fried,” Huizenga said.

Gensler said investigative documents are meant to be confidential, and Huizenga says he will follow up on the matter.

A number of lawmakers questioned Gensler about a perceived lack of regulatory clarity for crypto companies.

Gensler told Congressman Brad Sherman (D-Calif.) that companies had to “come in and comply and register to protect the investors.”

Congressmen Warren Davidson (R-Ohio) and McHenry said the regulator has not provided the clarity needed by the industry to actually do that. Davidson pointed to Gensler’s lack of a definitive answer on whether ether is a security as one example.

Other lawmakers, such as Congressman Stephen Lynch (D-Fla.), said there is indeed “a good deal of guidance and clarity,” though “it’s just not the clarity that the crypto industry wants,” pointing to the SEC’s enforcement actions and recent guidance. and joint statements from various federal regulators.

“My friends across the aisle seem to bemoan a lack of regulatory clarity, and in the same breath they criticize the SEC’s rulemaking efforts that will no doubt provide the clarity they want,” Lynch said.