SEC chair says most cryptocurrencies including stablecoins are securities

In his testimony before the Senate Banking Committee, Gary Gensler, chairman of the U.S. Securities and Exchange Commission, said that Coinbase lists “dozens of tokens that may be securities.”

Fast facts

• In response to Senator Pat Toomey’s questions about whether cryptocurrencies classify as securities, Gensler said “very many” of the cryptocurrencies, including stablecoins, are in fact securities or investment contracts. Gensler had hinted at stablecoin regulation in July and reiterated earlier this month that stablecoins may enable bad actors to “sidestep” public policy goals.

• Toomey, the top Republican on the committee, said there is a lack of clarity on how the SEC applies the Howey and Reves tests — the standard test applied to determine whether a product is a security or not — echoing the concern that was recently raised by Coinbase when the SEC threatened to sue it if Coinbase launched its lending product. “Why wait to make the SEC’s views known only when it swoops in with an enforcement action, in some cases, years after the product was launched? This is regulation by enforcement and it’s very objectionable, and I’m concerned it can stifle domestic innovation,” Toomey said.

• In response, Gensler said that “Congress painted [with] a broad brush, and it actually included about 35 different things inside the definition of a security act.” However, Toomey disagreed, saying that though broad, the definition is “well defined,” adding that, “we certainly shouldn’t be taking enforcement action against somebody without having first provided that clarity” about how cryptocurrencies classify as securities. Though Toomey never mentioned Coinbase directly, his remarks seemed to reference the SEC’s dispute with Coinbase over Lend.

• Senator Elizabeth Warren pointed to the crypto market dip last week and the successive crash of Coinbase, and asked Gensler about whether the SEC could do anything to help investors get their money out. Gensler said the SEC was powerless since Coinbase is not registered with the regulatory body, adding that cryptocurrencies are “a highly speculative asset class. It doesn’t sound like the path” to financial inclusion as touted by crypto advocates.

• While Gensler has repeatedly asked crypto businesses to talk to the SEC, Senator Steve Daines pointed out Gensler has been giving “vague speeches, vague remarks, vague interviews” and that businesses that did talk to the SEC “have soon after found themselves the targets of enforcement actions or even legal threats.” Gensler said that crypto companies should either register or seek an exemption, or seek a no action letter and work with the SEC to ensure that they’re registered.

• During the testimony, Gensler said he is “not negative or minimalist about crypto. I just think it would be best if it’s inside the investor protection regime that Congress laid out.” Gensler has slammed the crypto industry for its lack of regulation, likening it to a ‘Wild West.’