During a nearly five-hour hearing on Tuesday, U.S. Securities and Exchange Commission Chair Gary Gensler refused to say whether ether, the second-largest cryptocurrency by market cap, was a security. The hearing covered a range of topics, from proposed rules and insufficient time for public feedback, to the approach towards crypto companies operating in the U.S. and proposed disclosure requirements around climate change and audit trails. Gensler’s appearance before the House Financial Services Committee was his first in over a year.
Committee Chairman Patrick McHenry (R-N.C.) said in his opening statement that “Congress must provide clear rules of the road to the digital asset ecosystem because the regulators cannot agree.” He criticized the SEC’s approach, stating that “regulation by enforcement is not sufficient nor sustainable,” and that it was “driving innovation overseas and endangering American competitiveness.” Ranking Member Maxine Waters (D-Calif.) took a different tone, applauding Gensler and his staff for their actions against crypto criminals. She argued that there were more pressing issues to address, such as recent bank failures, a housing crisis, and the potential debt ceiling default.
One of the most contentious points in the hearing came when McHenry asked Gensler if he thought ether was a security. Gensler refused to say yes or no, stating that “it depends on the facts and the law.” Joshua Ashley Klayman, head of Fintech and Blockchain and Digital Assets at Linklaters, argued that this was a positive sign for the industry, as it gave cover not just to ETH but also to other cryptocurrencies.
Congressman Bill Huizenga (R-Mich.) asked Gensler if the SEC would provide its internal staff memo recommending an enforcement action against FTX and Sam Bankman-Fried. Gensler said investigative documents are intended to be confidential, with Huizenga responding that he would follow up on the matter. Several lawmakers questioned Gensler about a perceived lack of regulatory clarity for crypto companies. Gensler told Congressman Brad Sherman (D-Calif.) that companies needed to “come in and comply and register to protect the investing public.” However, Congressmen Warren Davidson (R-Ohio) and McHenry argued that the regulator has not provided the clarity needed by the industry to actually do so.
Davidson pointed to Gensler’s lack of a definitive answer on whether ether is a security as one example. Other lawmakers, like Congressman Stephen Lynch (D-Fla.), said there is indeed “a fair amount of guidance and clarity,” though “it’s just not clarity that the crypto industry wants,” pointing to the SEC’s enforcement actions and recent guidance, and joint statements by various federal regulators. Lynch argued that the SEC’s rulemaking efforts would provide the clarity that the industry desires.
In summary, the hearing covered a range of topics, from proposed rules and insufficient time for public feedback, to the approach towards crypto companies operating in the U.S. and proposed disclosure requirements around climate change and audit trails. While Gensler refused to say whether ether was a security, his lack of a definitive answer was seen as a positive sign for the industry. Lawmakers questioned the perceived lack of regulatory clarity for crypto companies, with some arguing that the SEC’s rulemaking efforts would provide the clarity that the industry desires.
