In today’s U.S. Senate Banking Committee hearing on SEC oversight, only climate change disclosures took up more time than the topic of cryptocurrency. Senator Toomey gave SEC Chair Gary Gensler a grilling. He chastised Gensler for the lack of enforcement against bankrupt crypto lending platforms Voyager and Celsius despite taking action against BlockFi. And he said the SEC’s lack of clarity over crypto regulation means Congress needs to take action.
“Given the novel nature of these tokens, really, Congress ought to step in and provide clarity,” said Toomey. “In particular, we need to revisit the definition of security as part of a larger effort to tailor a regulatory framework that is calibrated to the unique risks and activities of the crypto market.”
Gensler later said, “the definition of securities should be the exclusive remit of these two committees (House and Senate) and the agency that you set up. If we end up with multiple federal agencies defining what a security is, and another agency tries to define it, it could undermine what we are doing.”
Toomey attempted to pin down Gensler on the key differentiator between Bitcoin, which is considered a commodity and the majority of tokens that Gensler sees as securities. In Toomey’s opinion, it’s about the level of decentralization. The Senator considers cryptocurrencies as having additional differentiating factors from securities. Namely that crypto tokens usually don’t have a claim on the issuer and can be settled in real-time without intermediaries.
Gensler responded that there are several factors, not simply the degree of decentralization. “That developer is in the middle, and the investing public is betting on them, counting on them, even if the token might be on a thousand computers,” he said.
The SEC Chair defended the strategy of dealing with what’s allowed on a case by case basis with exemptive orders. He noted that for asset backed securities the SEC did something similar for years. It then took ten years of experience of industry discussions and exemptive orders to come up with rules.
Banking Committee Chair Sherrod Brown referenced a hearing today by the Senate Committee on Agriculture regarding Senator Stabenow’s Bill on regulating digital commodities such as Bitcoin, the Digital Commodities Consumer Protection Act of 2022. If passed, the Bill will give the Commodity Futures Trading Commission oversight over both cash and derivatives markets for cryptocurrencies that are not securities.
Finally, during the Banking Committee hearing, Senator Lummis, co-author of the Lummis Gillibrand Bill on digital assets, stated that she planned to reintroduce the Bill in January. She was keen to continue collaborating with the SEC to close potential regulatory gaps. Responding to her questions on disclosure Gensler noted that crypto companies might not need to provide the same level of detail as a large multinational company.