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


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.”

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