Lawmakers Grill SEC Chair Over Regulatory Approach to Crypto

Chairman of the U.S. securities and exchange commission (SEC), Gary Gensler came under fire from the U.S. congress in a Wednesday hearing over his approach towards crypto regulation.

Gensler faced several questions on the floor of the house, the major ones being whether a Bitcoin ETF will be approved, whether Bitcoin is a security, and whether a Pokemon card could be considered a security. 

The first question was thrown by House Financial Services Committee Chair Patrick McHenry, R-N.C. who asked Gensler if Bitcoin was a security or not.

“I’m asking you to answer my question now.. “This is not supposed to be hard,” McHenry said as the question was met with a bit of back and forth.

In response to McHenry, Gensler said bitcoin is not a security, and that it does not meet the so-called Howey Test, a test that was born from a 1946 U.S. Supreme Court case and is now used to help determine whether transactions are investment contracts and thus subject to securities laws. 

On the issue of a Bitcoin ETF, Rep. Nickel, who was one of those who sent a letter to the SEC asking it to approve a Bitcoin ETF in light of the Grayscale ruling asked:

“Now that the SEC has the court’s decision in hand, rejecting your rationale for denial, does the SEC plan to approve the current pending spot bitcoin ETF applications?”

Gensler said the agency was “still taking this under advisement.” 

Finally, Rep. Ritchie Torres, D-N.Y., asked Gensler if buying a Pokemon card could be a security transaction that is subject to securities laws, to which he said no.

“If I were to purchase a tokenized Pokemon card on a digital exchange via blockchain — is that a security transaction?” Torres then asked. “I’d have to know more,” Gensler said. 

Gensler and the FTX Collapse

Gensler is now a household name in the U.S. because of his crackdown on crypto. This was his approach even before the collapse of FTX. However, there is the notion that he hasn’t approached the FTX case with the same seriousness he used with the rest of the industry.

During the hearing, McHenry accused Gensler of not being transparent to Congress regarding his interactions with bankrupt crypto exchange FTX and its former CEO Sam Bankman-Fried, leading to a subpoena threat. 

“Either we find a path forward where the SEC recognizes Congress as a co-equal branch of government and is responsive to our oversight duties, or my only option is to issue a subpoena,” McHenry said.

However, Rep Maxine Waters, D-Calif., backed Gensler up in her opening remarks, saying “The SEC is very much implementing the priorities that I and my Democratic colleagues championed when we were in charge, and is shaping up to be the most pro-worker, pro-investor, pro-small business SEC since FDR created the agency,”

Regulation by Enforcement

In another heated exchange, Rep. Tom Emmer, R-Minn., accused Gensler of being partial and taking a “regulation by harassment approach” toward digital assets.

“Instead it’s clear that you are working to consolidate your own power even though it means crushing opportunities for everyday Americans and frankly, the financial future of this country,” Emmer said. 

This is with respect to Gensler’s opinion that most cryptocurrencies and crypto firms are subject to federal securities laws, and that the industry is generally non-compliant.

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