SEC Chair Gary Gensler’s recent remarks on crypto at the 2023 Securities Enforcement Forum have reaffirmed the Securities and Exchange Commission’s (SEC) stance that most digital assets are securities. Gensler’s comments reflect the SEC’s concerns regarding compliance and accountability within the growing crypto industry, signaling increased scrutiny.
During his address, Gensler emphasized the SEC’s commitment to upholding securities laws and ensuring that investors and issuers in the crypto asset securities markets receive the same protections as those in traditional financial markets. He explained that the broad definition of a security includes the “investment contract,” a concept that is evident in the crypto landscape due to the economic realities most investors engage with. Therefore, Gensler posited that most crypto assets likely meet the investment contract test, subjecting them to securities laws.
Gensler drew parallels between the current state of the crypto industry and the financial landscape of the 1920s, highlighting challenges such as fraud, scams, bankruptcies, and money laundering that existed before federal securities laws were established. He argued that these issues necessitate stricter regulations. However, the crypto community argues that digital assets differ significantly from historical counterparts, requiring unique regulatory approaches.
Gensler noted that many crypto entities claim immunity from pre-blockchain-era regulations but seek these laws’ protections when faced with bankruptcy or litigation. He highlighted the SEC’s active role in addressing these issues through enforcement actions. Despite a recent setback in the lawsuit against Grayscale, the SEC maintains its commitment to investor protection through litigation and enforcement actions.
While Gensler maintained a seemingly neutral stance in his remarks, focusing on regulatory issues within the crypto market, SEC Commissioner Hester Peirce has stressed the importance of fostering an environment conducive to crypto innovation in the U.S. She believes regulators should consider what they can do differently to make the U.S. a viable location for crypto companies.
Gensler’s message suggests that the crypto industry should not expect to remain without stricter regulations for long. The SEC is determined to enforce securities laws on digital assets. However, it is important to note that there is an ongoing dialogue about the nature and extent of this regulation, with differing views within the crypto community and the SEC itself.