SEC Chair Gensler doubles down on regulating crypto as securities

·Senior Reporter
·2 min read

Securities and Exchange Commission Chairman Gary Gensler is doubling down on his claim that most cryptocurrencies constitute securities as the administration looks to regulate digital assets.

The chairman continues to stake claim for the agency’s authority and oversight amidst a debate over which financial regulators should oversee crypto.

“Most crypto tokens involve a group of entrepreneurs raising money from the public in anticipation of profits — the hallmark of an investment contract or a security under our jurisdiction,” Gensler said in speech Wednesday on reducing risk and increasing transparency of derivatives at the International Swaps and Derivatives Association Annual Meeting. “Most crypto tokens are investment contracts under the Supreme Court’s Howey Test.”

Gensler said few cryptocurrencies are like digital gold, and therefore commodities, implying that the SEC should have greater jurisdiction over crypto instead of the Commodities Futures Trading Commission, which regulates commodities.

U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler testifies before a Senate Banking, Housing, and Urban Affairs Committee oversight hearing on the SEC on Capitol Hill in Washington, U.S., September 14, 2021. REUTERS/Evelyn Hockstein/Pool
U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler testifies before a Senate Banking, Housing, and Urban Affairs Committee oversight hearing on the SEC on Capitol Hill in Washington, U.S., September 14, 2021. REUTERS/Evelyn Hockstein/Pool

Senator Cynthia Lummis (R, WY), who along with Senator Kirsten Gillibrand (D, NY), is readying comprehensive legislation to regulate cryptocurrencies, believes most cryptocurrencies are commodities, which would put them under the jurisdiction of the CFTC for trading spot markets and futures markets. Though, Lummis said for crypto products that are bundled into securities, they would have the so-called Howey Test, a case law test that helps determine what's a security, which would fall under the SEC.

When it comes to derivatives, Gensler said if a derivative contract called a swap is based on a crypto asset, then it is a security-based swap and subject to SEC registration and oversight. Gensler also said derivative trading platforms — decentralized or centralized – that offer security-based swaps need to register with the Commission.

“It’s important to recognize that if the underlying asset is a security, the derivative must comply with securities regulations,” Gensler said.

The SEC charged app developer Abra nearly two years ago for selling security-based swaps to investors without registering with the SEC and for failing to transact those swaps on a registered national exchange. Gensler warned the SEC could bring more cases.

“Unfortunately, there may be more,” Gensler said. “We will continue to use all of the tools in our enforcement toolkit to ensure that investors are protected in cases like these.”

Gensler’s comments come as crypto markets have swooned with bitcoin (BTC) down more than 50% from its all-time high and a run on stablecoin TerraUSD (UST), which traded as low as 23 cents Wednesday.

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Jennifer Schonberger covers cryptocurrencies and policy for Yahoo Finance. Follow her at @Jenniferisms.

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