Securities and Exchange Commission Chairman Gary Gensler sent perhaps his strongest message to the crypto industry Tuesday during a speech in which he asked Congress to give the SEC explicit authority to regulate crypto exchanges, while suggesting the majority of digital assets traded today are being offered in violation of U.S. securities laws.
The speech was described as “the most aggressive and hostile stance” taken by a U.S. regulator towards the industry by crypto venture capitalist Katherine Wu in a tweet , but it wasn’t just private sector that was taken aback. Republican Commissioner Brian Quintenz of the Commodity Futures Trading Commission appeared to take exception to Gensler’s words as well.
The public disagreement between Gensler and a fellow regulator at the CFTC underscores the fact that existing laws governing commodity, currency and securities are not equipped to deal with digital assets, which often share characteristics with all three.
Ken Joseph a former SEC enforcement and examinations official and a regulatory consultant at Kroll said he predicted a “territorial fight” will ensue over which agency gets to regulate digital assets broadly.
He said that Chairman Gensler’s request that Congress grant the SEC new powers to regulate cryptocurrencies is an “admission that they have utilized the limits of federal securities laws to their fullest extent,” through enforcement actions and that attempts to regulate digital-asset exchanges could run into trouble in the courts.
“It will be extremely interesting to see whether Congress wants to take the SEC up on its offer and expand its powers into areas that don’t necessarily involve securities,” he told MarketWatch. “I suspect other regulators like the CFTC and the Fed may want to assert their role instead of ceding to the SEC the role of uber policeman of the cryptocurrency space.”
Keith Miller, also a former SEC enforcement lawyer and partner at Perkins Coie told MarketWatch that while the speech showed Gensler’s ambitions toward crypto regulation, it also laid bare that the regulator does not have the resources to vigorously oversee the industry.
“His call for more resources is certainly telling,” Miller said, though he also said the speech signaled “an increase in enforcement activity in the digital asset space, particularly in DeFi.”
Gensler’s speech and subsequent reaction underscores the need for Congress to step in and bring clarity to crypto regulation, as entrepreneurs don’t know whether the digital tokens they are developing are securities.
“The SEC won’t tell them and so they’re left in a catch 22, which stifles innovation,” Miller said. “The industry has been clamoring for legislation to clear things up and so until that happens we’re going to continue to see attempts to define whether a digital asset is a security through enforcement.”
Crypto assets were trading higher Wednesday afternoon, with bitcoin /zigman2/quotes/31322028/realtime BTCUSD -0.82% up about 4.3% and ether /zigman2/quotes/108573964/realtime ETHUSD -0.77% gaining roughly 8.4%.