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SEC Chair Gensler Can’t Specify Whether ETH Is Security

Posted on April 19, 2023

On Tuesday, Gary Gensler, the Chair of the US Securities and Exchange Commission (SEC), took part in a five-hour Congressional Hearing where he defended the agency’s action, including regulatory enforcement on crypto firms. However, Gensler refused to speak on the status of Ethereum, the second-largest crypto asset by market capitalization, on if the cryptocurrency is a security.

Meeting With Congress

For the first time since the current Congress assumed office, the chairman of the SEC met with the House Financial Service Committee. Gensler’s appearance concerns the rising public outcry about the commission’s enforced actions over the digital asset industry.

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During the hearing, the SEC boss resisted questions on whether the agency is aggressively enforcing proposed regulations with no time for the public to give feedback on the rules. In addition, Gensler was also asked how the commission approached crypto firms looking to open shop in the United States and other non-crypto-related questions.

In his opening remarks, Committee Chairman Patrick McHenry stated that the US Congress must provide regulatory clarity for the digital asset ecosystem because the regulators and operators need direction to follow. According to McHenry, the SEC’s regulatory-enforcement approach is not a sustainable strategy, and the financial watchdog’s action is driving innovations out of the United States.

Interestingly, one prickly part of the hearing comes after McHenry asked the SEC chair if he thinks Ethereum is a security. The lawmaker refers to the 2018 speech by the then SEC Corporate Finance Director, Bill Hinman, who said that this cryptocurrency is not a security.

Thus, McHenry asked Gensler to shed more light on whether the second-largest crypto asset is a security. In response, the SEC chair stated that this depends on the facts and the interpretation of the law before dodging further questions about Ethereum.

Lack Of Regulatory Clarity

During the Tuesday Congressional Hearing, observers noted that Gensler displayed a perceived lack of responsiveness to the lawmaker’s questions about how his commission approaches regulatory issues in the crypto space. Furthermore, Congressman Bill Huizenga asked the SEC boss if the commission is willing to show its internal staff memo stating the recommendation of an enforcement action against the now-bankrupt crypto exchange, FTX, and its former owner, Sam Bankman-Fried.

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Gensler responded that investigative reports are strictly confidential and no federal agency releases such documents for public scrutiny. Some lawmakers also questioned the SEC chair about the regulatory uncertainty in the crypto market.

Gensler states that digital asset firms must go to the commission, comply and register in the interest of the investing public. Congressmen Warren Davidson and McHenry believe that the regulator needs to provide regulatory clarity for the crypto industry to flourish.

The lawmakers cited Gensler’s need for a detailed answer on whether Ethereum is security as proof of the agency’s lack of direction. Meanwhile, Congressman Stephen Lynch believes there is some regulatory clarity and that the crypto industry needs more than just regulations.


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