In a recent turn of events, Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC), finds himself caught in a web of ambiguity surrounding classifying cryptocurrencies as securities. His stance on the matter has shifted, leaving industry players perplexed and fueling ongoing legal disputes.
Gensler, known for his expertise in cryptocurrency regulation, previously clearly distinguished between tokens issued through initial coin offerings (ICOs) and established cryptocurrencies such as bitcoin, ether, Litecoin, and bitcoin cash. He stated multiple times that the latter group needed to meet the criteria for securities. However, Gensler’s recent silence on ether’s status has raised questions, especially considering his past comments.
During a 2018 institutional crypto conference at Bloomberg’s headquarters and his cryptocurrency course at the Massachusetts Institute of Technology (MIT), Gensler highlighted that most of the crypto market, approximately three-quarters, did not fall under the securities umbrella. He emphasized that these cryptocurrencies were simply commodities or cash cryptos, not subject to stringent regulatory supervision.
Nonetheless, Gensler identified certain ICOs, including Ripple’s XRP and EOS, as meeting the criteria outlined in the Howey test, thereby classifying them as securities. He also acknowledged that ether may have initially qualified as a security during its launch in 2014 but suggested that the SEC’s subsequent acknowledgment of its decentralization altered its classification.
Gensler and the SEC assert that most tokens should be regarded as securities, aligning with Gensler’s previous stance on ICOs. However, the ambiguity persists regarding ether, as Gensler still needs to provide a definitive answer during recent inquiries. He mentioned that if the public anticipates profits based on the efforts of others in a joint enterprise, it could indicate the presence of security.
The SEC’s lawsuit against Coinbase, which accuses the exchange of offering a staking service for ether, considers the service a security. Yet, it does not directly address the underlying asset itself. This lack of clarity has led Coinbase to sue the SEC, seeking further guidance. Similarly, Ripple Labs hopes that recently released documents related to a 2018 speech by former SEC Chair William Hinman will shed light on the regulatory landscape.
As the crypto industry seeks regulatory certainty, the conflicting positions and evolving views of regulators like Gensler continue to complicate matters. The need for clear guidelines and classification standards has become increasingly apparent. The ongoing legal battles between Ripple and the SEC, as well as Coinbase’s pursuit of clarity, underscore the significance of this issue. Market participants eagerly await a resolution to bring crypto stability and regulatory understanding.
In this intricate landscape, the words of Gensler and the actions of the SEC hold immense weight. Market players, regulators, and investors must navigate the evolving crypto securities landscape, all while the industry clamors for a cohesive framework that fosters innovation and protects stakeholders.
