Gensler Calls Out Crypto

In written testimony before the Subcommittee on Financial Services, newly appointed SEC Chair Gary Gensler touched on several issues bothering the regulatory agency.

Zooming in on critical areas like fintech and private funds, Gensler lent his voice to the much-talked-about cryptocurrency market.

Gensler started by reiterating that the nascent industry contains volatile and speculative asset classes of cryptocurrencies.

Moving on to the valuation of the crypto industry, Gensler noted that it was $1.6 trillion at the time of the testimony, having fallen from $2 trillion in the last few days.

Gensler then proceeded to label digital assets as investment contracts saying a vast majority of crypto assets fall under the securities law. To this end, the SEC has taken 75 enforcement actions against non-compliant crypto projects and warned investors in the space.

“The SEC has been consistent in its communication to market participants that those who use initial coin offerings to raise capital or to engage in securities transactions must comply with the federal securities laws. Asset managers that invest in these assets may come under securities laws, too.”

The former MIT crypto scholar also brought up decentralized finance (DeFi) platforms noting that these unregulated platforms presented huge challenges to investors and the regulatory body.

Gensler has been quiet on crypto regulation since the confirmation of his appointment, but the last few weeks have given credence to his claims of crypto assets like Bitcoin being “speculative.”

Bitcoin, which commands more than 50% of the entire crypto market, saw negative price action following bashing from Tesla boss Elon Musk on its power-guzzling mining protocol. A sequel saw the Chinese government call for an end to crypto payments in the Asian nation.

These negative reports saw Bitcoin's price fall from its all-time high of $65,000 in mid-April to a paltry $30,000, losing over 50% of its value in a week. Although it has since rallied to the $40K mark, Bitcoin has met a lot of market resistance, and investors have lost over $500 billion in the aftermath of the news.

Aside from the volatility issues surrounding cryptocurrencies, questions about them being a viable vehicle for crime have frequently been asked, and Gensler feels a need for this to be checked.

In response to Congressman Mike Quigley's (IL) question on whether it would be necessary to create a regulatory category for the nascent space, Gensler said regulating crypto exchanges may help address the gaps in the space.

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