In his recent talk before the 2023 Securities Enforcement Forum, SEC Chair Gary Gensler offered a stark warning to the burgeoning crypto asset securities markets, captured in his terse comment, “Don’t get me started on crypto.”
This assertive remark highlights the SEC’s ongoing concerns about compliance and accountability within the rapidly expanding crypto industry and signals increased scrutiny.
Gensler’s address painted a comprehensive picture of the issues impacting crypto. It firmly reinforced the SEC’s commitment to upholding securities laws, clarifying that investors and issuers in the crypto asset securities markets deserve the same protections as those in traditional financial markets.
He explained the broad definition of a security, which includes the “investment contract,” a concept he states is undeniably evident in the crypto landscape given the economic realities most investors engage with. Gensler posited that most crypto assets likely meet the investment contract test, subjecting them to securities laws.
“Without prejudging any one asset, the vast majority of crypto assets likely meet the investment contract test, making them subject to the securities laws.”
Drawing comparisons between the current crypto scenario and the financial landscape of the 1920s, Gensler outlined the crypto field’s challenges—fraud, scams, bankruptcies, and money laundering- before federal securities laws were established.
He argued these issues necessitate stricter regulations. However, the crypto community counters that the nature of digital assets differs significantly from its historical counterparts, necessitating unique regulatory approaches.
Gensler noted that while many crypto entities claim immunity from pre-blockchain-era regulations, they often seek these laws’ protections when faced with bankruptcy or litigation. However, he highlighted the SEC’s active role in addressing these issues, stating, “We have brought numerous enforcement actions against actors in this space—some settled, and some in litigation.”
Despite a recent setback with its lawsuit against Grayscale—leading to the hope of multiple spot Bitcoin ETFs—the SEC maintains its steadfast stance on ‘investor protection.’ Its pursuit of litigation and enforcement actions is said to demonstrate its commitment to its mission of investor protection.
In his remarks, Gensler maintained a seemingly neutral stance, focusing on his assessment of the regulatory issues within the crypto market. He underlined that robust regulation is crucial for securing investments in the crypto market despite this new digital frontier’s challenges, without suggesting that digital assets would be restricted outright.
However, it’s worth noting that SEC Commissioner Hester Peirce recently stressed the need for regulators to foster an environment conducive to crypto innovation in the U.S. She emphasizes that regulators must consider what they can do differently to make the U.S. a viable location for crypto companies.
Gensler’s message indicates that the crypto industry cannot expect to remain without stricter regulations for long. The SEC remains committed to enforcing securities laws on digital assets. Yet, it’s essential to remember that there’s an ongoing dialogue about the nature and extent of this regulation, with differing views within the crypto community and the SEC itself.