Gary Gensler Hearing Highlights: Refuses to Answer Questions on Ethereum's Classification, Gary Gensler Grilled by Members of Congress

House Financial Services Committee Chair Patrick McHenry has repeatedly asked SEC Chair Gary Gensler whether Ether is a security. Gensler has refused to comment, citing "refusal to comment on specific tokens" as the reason. However, Patrick McHenry pointed out a logical inconsistency, noting that Gensler had previously commented on Bitcoin and now cannot answer a simple question about the second largest market cap cryptocurrency, Ether?

Gary Gensler Hearing: Most Cryptocurrencies Are Securities

In line with his previous stance, Gensler reiterated that the vast majority of cryptocurrencies fall under the category of securities. This means that many cryptocurrency intermediaries are trading securities and must register with the SEC.

These intermediaries include exchanges, securities brokers, custodians, lending platforms, etc. He pointed out that some intermediaries have mixed functionalities, which bring conflicts of interest and risks to investors, something the SEC cannot accept.

Prior to the hearing, Gensler posted on Twitter the SEC's achievements over the past two years: more than 1,500 enforcement actions.

Serving at the @SECGov for two years has been an honor.

We’ve filed 1,500 enforcement actions & overseen tens of thousands of registrants.

We’ve proposed rules to make our markets more efficient, competitive, transparent, resilient—and worthy of the public’s trust.

More 🎥👇

— Gary Gensler (@GaryGensler) April 17, 2023

Key Controversy in Gary Gensler Hearing: Positioning of Ether

A recent point of contention for Gensler is his firm belief that Ether falls under the category of securities. The New York Attorney General's Office, which accused KuCoin in early March of selling unregistered securities such as ETH and LUNA, shares the same position as the SEC.

In contrast, another major regulatory body, the CFTC, considers Ether and stablecoins as commodities.

Further complicating matters is the speech given by former SEC Director of Corporation Finance William Hinman at the Yahoo Finance Summit in 2018, where he emphasized that Ethereum did not fall under the category of securities under the Howey Test standard.

This speech can still be found on the SEC website and was also mentioned by House Financial Services Committee Chair Patrick McHenry during the hearing.

Gary Gensler Hearing: Refusal to Comment on Ethereum's Classification

During the hearing, when questioned by lawmakers, Gensler, contrary to his usual practice, remained silent on whether Ether is a security. He cited the number of digital asset projects and cryptocurrencies that have violated securities laws:

I have never seen an area with such a high level of violations of laws passed by Congress, continuously being upheld by the courts. We will continue to engage with crypto companies and negotiate registration.

Chairman of the House Financial Services Committee Patrick McHenry raised the contradiction among the CFTC, SEC, and the New York Attorney General and asked once again whether Ether is a commodity or a security:

"It is obvious that an asset cannot be both a commodity and a security at the same time. So I ask you now, based on current legal assessments, is Ether a commodity or a security?"

Gensler:

Chairman, I do not wish to discuss specific tokens.

Patrick McHenry:

"You have consistently avoided discussing individual cryptocurrencies, but you have provided explanations for specific cryptocurrencies, such as Bitcoin. So now I want your opinion on the second-largest cryptocurrency by market capitalization."

Gensler continued to evade the question:

There are over ten thousand cryptocurrencies in the market, assuming there is a large group of intermediaries, and the public's expected profits rely on this group...

Patrick McHenry interrupted Gensler:

"I am asking a specific question, Mr. Gensler. I have mentioned this privately as well, this question should not come as a surprise to you. Is Ether a commodity or a security?"

Gensler:

This determination must be based on facts and law. If there is a group of people...

Patrick McHenry interrupted Gensler:

"I am asking based on current facts and law, what is your judgment on Ether?"

Gensler:

Chairman, I believe you would not want to see me take any predetermined stance on this.

Patrick McHenry interrupted Gensler:

"You already have a stance on this, SEC has taken dozens of enforcement actions, filed lawsuits, issued Wells notices. In this process, clarity should gradually emerge. I just want to ask a simple question, in your view, what is a security?"

After multiple unsuccessful inquiries, McHenry raised his voice at Gensler:

"Come on, at least agree that there is a lack of clarity in security determinations, right?"

Gensler countered, stating that securities laws are quite clear.

Gary Gensler Blames Cryptocurrencies for Banking Crisis

Gensler attributed the banking crisis in March to cryptocurrencies, mentioning that Circle holds $30 billion in USDC reserves at Silicon Valley Bank.

Several Republican lawmakers also questioned the SEC's delayed enforcement actions against FTX, including why they have not prioritized actions against offshore companies like Binance and Tether.

Gensler cited the SEC's inherent enforcement priorities as the reason for the delay but acknowledged that offshore crypto companies may be illegally offering services to U.S. users and emphasized that the SEC has jurisdiction over these cases.