Gary Gensler, the Chair of the United States Securities and Exchange Commission (SEC), appeared in a hearing on Tuesday, April 18. This hearing was in front of Congress to answer about his recent actions towards the crypto community. When asked if Ether, the native cryptocurrency of the Ethereum blockchain, is a security or a commodity, Gensler did not provide a straight answer.
Throughout the long session, which lasted more than five hours, Gensler dodged several questions. These concerns included whether his agency was pressing too aggressively on new rules, leaving too little opportunity for feedback from the public. He was also questioned about how it approached crypto firms seeking to operate in the United States. A slew of non-crypto questions, including potential climate change disclosure requirements and audit trails.
Gensler met the House Financial Services Committee (HFSC) officially for the first time since October 2021. The last time he appeared was prior to the collapse of FTX and crypto-friendly institutions such as Signature, Silicon Valley Bank, and Silvergate. It was also his first appearance since the new Congress began office.
The question about Ether was raised by Congressman Patrick McHenry, the committee chairman. “Congress must provide clear rules of the road to the digital asset ecosystem because the regulators cannot agree,” said McHenry in his opening statement. “Regulation by enforcement is not sufficient nor sustainable. Your approach is driving innovation overseas and endangering American competitiveness.”
One of the hearing’s more controversial topics came early on when McHenry questioned Gensler if ether was a security or a commodity. Gensler dodged this question by giving a vague answer.
“Actually, all securities are commodities under the Commodity Exchange Act. It’s that we are excluded commodities. But I would agree that security cannot be also an excluded commodity and an included commodity,”
Gensler saw some support for his side as well. Ranking Member Maxine Waters struck a different tone in the hearing. She claimed that the hearing was centred on Gensler despite other serious matters such as recent bank failures, a housing crisis, and the possibility of a debt ceiling default. Waters praised Chair Gensler and his team for the SEC’s strong efforts. She said that the SEC had increased its efforts to pursue “crypto criminals”.
Regulators and prosecutors have taken opposing positions on how to classify Ether. The New York Attorney General recently referred to it as a security, while Commodity Futures Trading Commission Chair Rostin Behnam contended that it is a commodity.
Gensler’s ignorance of Congressmen’s questions about the crypto industry outside of this hearing was also brought up. Several legislators questioned Gensler about a perceived lack of regulatory certainty for cryptocurrency firms. Gensler was asked if the SEC would submit a note to its internal staff proposing an enforcement action against FTX and Sam Bankman-Fried. Gensler said that investigation records are meant to be kept secret. Once again he did not provide a clear answer.
On Tuesday, Gensler told the HFSC that the SEC needed additional resources and people to govern the crypto asset class. Gensler spoke before the Subcommittee on Financial Services and General Government late last month. He requested US$2.4 billion in financing from Congress for the agency’s operations, including its cryptocurrency crackdown.
The SEC is not the only regulatory body with troubles from the crypto industry. Summer Mersinger, the commissioner of the Commodity Futures Trading Commission (CFTC), requested Congress on March 19, 2023, to instruct regulators to collaborate on crypto law and regulation. Mersinger specified that Congress should direct the SEC to work with the CFTC. Due to the lack of clarity between the regulators and the crypto industry, several tussles have taken place.
On many occasions, Gensler indicated that cryptocurrencies based on the proof-of-stake consensus method, such as Ether, might be considered securities. This would entail investor-protection requirements that many say are incompatible with the asset class. In May 2022, Gensler declared Bitcoin, the world’s largest cryptocurrency by market capitalization, to be a commodity. Even then when questioned about Ether, Gensler chose to remain silent.
