Crypto

US SEC Chair Gensler reiterates crypto stance, frustrating those seeking clarity

Comment

An image of U.S. Securities and Exchange Commission chair Gary Gensler speaking during a House Appropriations Subcommittee in May 2022
Image Credits: Bloomberg / Contributor (opens in a new window) / Getty Images

In the wake of major crypto firms Celsius and Voyager freezing assets and filing for bankruptcy, U.S. Securities and Exchange Commission Chair Gary Gensler took to The Wall Street Journal’s op-ed pages to reiterate that securities laws still apply to new technologies like digital assets.

But some in the crypto industry have expressed frustration about the piece, calling for stronger guidelines not repetitions of familiar arguments.

Gensler compared car manufacturers to crypto lending platforms as a way to assert that consumers and investors alike deserve protection, whether it’s in a motor or investment vehicle. Even though cars have evolved over decades, the required safety features remain standard, he noted.

Gensler restated his goal to have existing securities laws — which aim to protect investors – apply to digital assets.

“I do agree with Chairman Gensler’s comments,” Michael Fasanello, chief compliance officer at LVL, told TechCrunch. “Noncompliance will — as we have seen with the SEC, [Office of Foreign Assets Control], and [The Financial Crimes Enforcement Network] — be met with aggressive enforcement. Just because the modality of finance changes doesn’t mean that regulatory compliance obligations suddenly disappear. Innovation is not a waiver of accountability.”

But until requirements are put in place for the crypto industry, platforms are left to innovate in the dark. Gensler’s op-ed failed to provide any new information, Katherine Dowling, general counsel and chief compliance officer at Bitwise Asset Management, said to TechCrunch.

Using “some cutesy vehicle comparisons … is a rather bland repackaging of the same messaging and ‘cop on the beat’ mantra with which the crypto industry has grown quite familiar at this point,” Dowling said.

“There’s no reason to treat the crypto market differently from the rest of the capital markets just because it uses a different technology,” Gensler wrote.

But not everyone agrees with that.

“Digital asset markets inherently function differently than capital markets,” Robert Baldwin, the policy head for Digital Asset Markets, said to TechCrunch. “As a result, the regulatory space is underdeveloped and guidance and rules are needed from the regulatory agencies.”

The Celsius and Voyager events highlight why it is “critical that crypto firms comply with securities laws,” Gensler said.

In the WSJ piece, Gensler also mentioned the crypto lending platform BlockFi, which agreed to pay $100 million after it settled an investigation with the SEC and other U.S. entities in February over claims that it violated securities law through its interest account offering.

“The issue was what it did with the borrowed assets and what it didn’t do as a firm: provide the required disclosures to investors,” Gensler wrote in regard to BlockFi’s high-yield interest accounts and loaning out borrowed digital assets for higher rates.

Gensler’s resolution? He encouraged platforms offering crypto lending to “come in and talk to SEC staff.”

Billionaire investor and entrepreneur Mark Cuban also voiced his dissent to Gensler’s op-ed in a tweet:

Cuban has become a vocal crypto investor and has made a handful of investments in the NFT space with companies like OpenSea, CryptoSlam and SuperRare. Last year, Cuban tweeted that Gensler makes it “near impossible” for investors and business people to have their questions answered. “Those [who] can’t afford lawyers can only guess.”

The crypto industry has made “numerous calls” for legal certainty, Baldwin said, but instead of getting clarity, it has been met with “scattered regulation by enforcement.”

And that certainty is essential for the future of innovation in the space, sources said.

“While I agree with the overarching point that investor protections are of course important, I disagree with his top note that the players in the space are trying to do wrong,” Dowling said.

“Once again, this skips over the help the industry has been legitimately asking for on the provision of clarifying definitions, fine-tuning custody rules for digital assets, and the need for an open dialogue for productive discourse, division of regulation between agencies,” Dowling added. “All of which Congress has also been pressing him on to no avail.”

Meanwhile, recent investigations hint at how U.S. regulators intend to provide a clear framework in the digital asset space.

Last month, the SEC launched an investigation into Coinbase after alleging that a handful of cryptocurrencies it supported trading in were securities. The SEC classifying some (but not all) cryptocurrencies as securities could be a major threat to the industry while confusing investors in the space.

“Crypto firms complying with securities laws will enjoy reduced liability, reduced risk and the ability to market a healthy platform for their customer base,” Fasanello said. “They could also likely enjoy adoption into mainstream finance, as traditional institutions gain trust in compliant firms’ credibility.”

But those operating on the fringes of regulated finance will continue to be ostracized, investigated, litigated and fined, Fasanello said.

Separately, a number of crypto bills have been written, including the proposed bipartisan bill sponsored by U.S. Senators Cynthia Lummis, Republican of Wyoming, and Kirsten Gillibrand, Democrat of New York, which aims to install guardrails around the digital asset space. But without bills like these being passed into law, there will still be a lot of uncertainty on both sides — and Congress isn’t exactly known for getting things done quickly.

“This pathway is not working,” Baldwin said. “Companies are not registering because there is no pathway for registration.”

The end result right now? “Markets and innovative businesses are shifting away from the U.S. to other offshore jurisdictions where legal certainty is provided,” Baldwin said.

“To borrow Chair Gensler’s car and seatbelt analogy, just as insurance companies understand that violations signal elevated risk, traditional finance understands that increased scrutiny by regulators signals unacceptable risk,” Fasanello said. “The crypto space has to decide whether it seeks mainstream adoption, to operate as a pure alternative to mainstream finance or a blend of both.”

“One thing is for certain — regulators will be busy with crypto for the foreseeable future.”

More TechCrunch

Founder-market fit is one of the most crucial factors in a startup’s success, and operators (someone involved in the day-to-day operations of a startup) turned founders have an almost unfair advantage…

OpenseedVC, which backs operators in Africa and Europe starting their companies, reaches first close of $10M fund

A Singapore High Court has effectively approved Pine Labs’ request to shift its operations to India.

Pine Labs gets Singapore court approval to shift base to India

The AI Safety Institute, a U.K. body that aims to assess and address risks in AI platforms, has said it will open a second location in San Francisco. 

UK opens office in San Francisco to tackle AI risk

Companies are always looking for an edge, and searching for ways to encourage their employees to innovate. One way to do that is by running an internal hackathon around a…

Why companies are turning to internal hackathons

Featured Article

I’m rooting for Melinda French Gates to fix tech’s broken ‘brilliant jerk’ culture

Women in tech still face a shocking level of mistreatment at work. Melinda French Gates is one of the few working to change that.

19 hours ago
I’m rooting for Melinda French Gates to fix tech’s  broken ‘brilliant jerk’ culture

Blue Origin has successfully completed its NS-25 mission, resuming crewed flights for the first time in nearly two years. The mission brought six tourist crew members to the edge of…

Blue Origin successfully launches its first crewed mission since 2022

Creative Artists Agency (CAA), one of the top entertainment and sports talent agencies, is hoping to be at the forefront of AI protection services for celebrities in Hollywood. With many…

Hollywood agency CAA aims to help stars manage their own AI likenesses

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

3 days ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

3 days ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies