SEC Chairman Interview Summary: Everything Except Bitcoin is a Security; Has Only Met SBF Once and Rejects Exchange Proposal on the Spot

SEC Chairman Gary Gensler reiterated his stance that everything other than Bitcoin is considered a security in an interview with New York Magazine: "You can find a website, a group of entrepreneurs outside of Bitcoin, who may have set up legal entities, foundations in offshore tax havens, promoting tokens, attracting investors through various complex, legally gray ways. These tokens are all securities."

Private Meeting with SBF

Around March last year, SBF resigned in January through former SEC General Counsel Dan Berkovitz and had a private meeting with Gary Gensler.

At the time, SBF was in the process of acquiring shares of the stock exchange IEX, seeking approval from Gensler to establish an "Alternative Trading System" that would be less regulated compared to national stock exchanges.

Gary Gensler emphasized his firm rejection of SBF:

I told them they should take the IEX-related information off their presentation, they shouldn't waste their time like this. FTX's conflicting mechanism cannot meet regulatory requirements. Just compliance alone is enough to require FTX to split its various businesses. They should have separate exchanges, separate brokers, custodians, etc., to segregate businesses.

The Los Angeles Times reported that SBF also had dinner with Dan Berkovitz in October 2021, but Gensler stated that he had only met SBF once.

All Cryptocurrency Transactions Fall Under SEC Jurisdiction

Gensler pointed out that apart from Bitcoin spot trading and payments, everything else falls under the category of securities:

Everything beyond Bitcoin, you can find a website, a group of entrepreneurs on other projects, they may have established legal entities, foundations in offshore tax havens, promoting tokens, attracting investors through various complex, legally ambiguous ways. These tokens are securities, the core issue is that there is an expectation between the project and the retail investors that this group can bring them profits, and profits are made through the efforts of these intermediaries.

Gensler reiterated that many crypto platforms are a kind of "store" with too many conflicting businesses mixed together, combining many functions that traditional finance must comply with, such as exchanges, lenders, market makers, brokers, custodians, and investment advisors. These stores do not comply with his understanding of securities laws.

The Value of Blockchain in Gensler's Eyes

1. Distributed Ledger

With the emergence of distributed ledger technology with Bitcoin, Gensler pointed out that this is theoretically more transparent, accessible, and resilient against theft and cyber attacks compared to centralized ledgers, but he also believes that while there are potential use cases, the actual demand is not high.

2. Payments

Gensler has less interest in the application of tokens in payments:

From history, we can see that network effects, economies always coalesce around specific currency units, there will be a currency that everyone can accept as a unit of transaction, accounting, value storage, etc. Since Genghis Khan, there have been two government-recognized currency standards: usable for taxation, and all public and private debt securities accept that currency. I don't think micro-currencies have any economic effect, and most tokens are likely to fail.

Why Not Completely Ban Cryptocurrencies?

If cryptocurrencies are useless and will eventually fail, and platforms are not compliant, why doesn't the government completely darken the cryptocurrency industry and ban all participants? Gensler stated:

My job should remain neutral on the risks investors are willing to take, but in the realm of investor protection, it should not be neutral, but provide comprehensive, fair, and truthful information disclosure.