Despite recent legal setbacks, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler remains resolute in his belief that the SEC should have a dominant role in regulating the cryptocurrency space. In a prepared testimony for a Senate Banking Committee hearing, Gensler reaffirmed his view that most crypto-assets should be considered securities and fall under the purview of the SEC.
Gensler highlighted the widespread noncompliance with securities laws in the crypto industry and likened it to the state of financial markets in the 1920s before the implementation of federal securities laws. He argued that, in his opinion, the majority of crypto tokens meet the legal criteria known as the Howey test, which determines whether an asset qualifies as a security.
He stated that "the vast majority of crypto tokens are likely to meet the investment contract test" and, therefore, should be subject to securities laws. This perspective would also extend regulatory obligations to most crypto intermediaries.
Gensler's remarks come in the wake of significant legal setbacks for the SEC. Notably, the SEC lost ground to Ripple when a judge ruled that sales of XRP tokens to retail consumers did not violate federal securities laws. While the SEC is appealing this decision, it has emboldened other cryptocurrency companies facing SEC lawsuits to cite the ruling in their efforts to have their cases dismissed.
In another legal defeat, the SEC faced a stinging rebuke from a judge who found the regulator's rejection of Grayscale's request to convert its over-the-counter Bitcoin trust into a Bitcoin exchange-traded fund (ETF) to be "arbitrary and capricious." These high-profile losses have spurred other crypto-related entities, like blockchain-based payments network LBRY, to file notices of appeal and challenge the SEC's regulatory actions in court.
