Gensler Defends SEC Crypto Crackdown and 90-Year-Old Securities Laws

Gary Gensler, the chair of the U.S. Securities and Exchange Commission (SEC), is doubling down on the agency's regulatory stance on cryptocurrencies.

During an Oct. 22 interview with Bloomberg Television, Gensler defended the 90-year-old laws it uses to police the web3 sector, asserting that “there is nothing incompatible” between decentralized ledger technology (DLT) and “existing securities laws.”

“If a market is ever going to have trust, it also needs to come into compliance,” Gensler said. “Regular investors have lost money in a field that's not providing the fundamental disclosure about their projects, investment contracts, and schemes.”

SEC versus Ripple Labs

Gensler was asked about the SEC’s decision to take cases to the appeals court, hinting at the recent federal judge's ruling in the high-profile case against Ripple.

“We do everything we do within the law, and… if the courts interpret it differently, we adjust — that's what we do,” Gensler added. “It's part of our great democracy.”

The SEC sued Ripple Labs in December, alleging the company and its executives violated securities law violations through its sale of XRP. Last July, Judge Analisa Torres, found that Ripple’s XRP token failed to satisfy the definition of a security according to the Howey Test — a legal framework used to determine whether an asset is a security. But Torres fined Ripple Labs $125 million for securities violations relating to its institutional sales of XRP in August.

The SEC filed a notice of appeal on Oct. 2 and finalized its paperwork on Oct. 18, requesting that the court reexamine XRP sales made by Ripple Labs and its executive on exchanges. Notably, the SEC did not appeal Torres’ verdict that XRP and other digital assets do not inherently comprise securities, even when primary sales take the form of a securities investment contract.

Gensler’s reign

Since Gensler took the helm of the SEC in 2021, the agency has taken a more aggressive stance toward the crypto sector. While Gensler reaffirmed in 2022 that Bitcoin is a commodity, the SEC has ramped up its regulation-by-enforcement strategy, targeting other web3 assets during his tenure.

In February 2023, the SEC reached a $30 million settlement with Kraken over its crypto staking program, highlighting the agency's determination to enforce securities laws on staking services. This was followed by a Wells Notice issued to Coinbase in March 2023. In June 2023, the SEC filed a lawsuit against Binance, further escalating its crackdown on major players in the crypto industry.

In a lighter moment during the interview, Gensler acknowledged Bitcoin’s upcoming anniversary.

“This Halloween, it will be 16 years since Satoshi Nakamoto wrote that [Bitcoin] white paper,” Gensler said. “Happy ‘sweet 16’ in a week.”

Bloomberg journalists asked Gensler how he would respond if Republican presidential candidate Donald Trump were to win reelection in 2024, given Trump’spledge to fire the SEC Chair “on day one” if victorious. Gensler declined to offer any comment.

CFTC Chair frustrated with stalled crypto regulation

During a Securities Industry and Financial Markets Association (SIFMA) meeting on the same day, CFTC Chair Rostin Behnam contrasted Gensler’s confidence in the U.S. regulatory landscape regarding crypto with frustration.

Behnam lamented that regulatory progress on crypto in the United States has come to a standstill, leaving his agency "handcuffed" in its efforts to oversee the space.

Behnam’s remarks come amid stalled efforts in Congress to pass legislation that would give greater power to the CFTC to regulate digital assets. On Sept. 10, Republican Congressman John Rose, a member of the House Financial Services Committee, introduced the BRIDGE Digital Assets Act, aiming to create a Joint Asset Advisory Committee focused on digital assets.

Without a clear legislative framework, Behnam said the CFTC's ability to effectively police the crypto market is severely limited, leaving investors exposed to potential risks.

"We are really handcuffed,” Behnam said during his panel at the SIFMA meeting. “That ends up leaving a really vulnerable market, leaving vulnerable customers, leaving institutional money on the sidelines and ultimately not really helping support technology as it wants to integrate into traditional finance.”

However, Behnam suggested that the upcoming election could bring renewed momentum for legislative progress on crypto regulation.

"I'm not betting on anything happening necessarily at the end of the year,” he said. “But there’s a unique appetite that this election, I think, has changed around digital assets and technology.”

Behnam has consistently advocated for the CFTC to have greater oversight over the cryptocurrency sector, arguing that many assets should be classified as commodities, not securities.

"Bitcoin, Ethereum, and other cryptocurrencies should be considered commodities," Behnam said during testimony before the U.S. Senate in July 2023.

The classification of cryptocurrencies has significant regulatory implications, as securities and commodities are governed by different sets of laws.

The SEC and CFTC have historically butted heads over the sector. Recent attempts from the SEC to classify ETH as a security threatened to place the operations of firms offering ETH futures afoul of the law, despite adhering to CFTC guidelines.