In a recent interview, Gary Gensler, chairman of the United States Securities and Exchange Commission (SEC), stated that most cryptocurrency transactions fall within the jurisdiction of the SEC, with the exception of Bitcoin spot transactions and buying or selling things with cryptocurrency. He noted that many cryptocurrency tokens are securities as a group is working in the middle and the public is anticipating profits based on that group.
Gensler insists that the SEC’s jurisdiction over most cryptocurrencies is based on the Supreme Court ruling in the case SEC v. W.J. Howey Co. which established the Howey test whereby four criteria are used to determine whether something constitutes an investment contract.
However, Mark Bini, an attorney at Reed Smith, argues that the Howey test is not clear, and a stablecoin pegged to the U.S. dollar might not qualify as a security since there is no expectation of profit. Bini also questions whether a digital currency launched by the United States would qualify as a security.
Congresspeople Jesús García and Stephen Lynch agree with Gensler, stating that according to the SEC chair and recent court decisions, the majority of crypto assets are securities.
Some in the crypto community argue that the SEC has been regulating by enforcement, charging individuals with crimes based on decisions around which tokens are securities. Caroline Pham, a Commodity and Futures Trading Commissioner, has also criticized the SEC for overreach in this area. However, Werbach argues that the securities laws are technology neutral and therefore do not necessarily require rulemaking to apply to digital assets.
The SEC has recently added 20 positions to its Crypto Assets Unit, which is responsible for investor protection and cyber-related threats. The unit is part of the Division of Enforcement and will grow to 50 positions, focusing on investigating securities violations related to crypto asset offerings and exchanges, lending and staking protocols, decentralized finance platforms, non-fungible tokens and stablecoins.
Gensler argues that his primary responsibility is investor protection and ensuring full, fair, and truthful disclosure in investing in a security. Overall, the debate around the SEC’s approach to enforcement of cryptocurrency regulation continues, with some arguing for clearer guidelines and wider consultations in determining which digital assets are securities.
