blockworks.co
The SEC chairman’s latest comments on crypto regulation failed to move the needle for industry participants after more specific parameters, signaling continued confusion and the growing likelihood of additional enforcement.
Gary Gensler wrote in a Wall Street Journal op-ed last Friday that recent market events — such as crypto lenders freezing investor accounts or going bankrupt — underline the importance of bringing the weight of securities rules to crypto.
“There’s no reason to treat the crypto market differently from the rest of the capital markets just because it uses a different technology,” Gensler wrote.
Jackson Mueller, director of policy and government relations at blockchain technology company Securrency, said Gensler’s opinion piece rehashes points the SEC chair has made since taking the helm of the agency in April 2021.
“The recent op-ed does not shed new light on the SEC’s position, but merely reinforces the chairman’s view that the activities and platforms be brought within a regulated setting and that the current regulatory framework is sufficient to encapsulate this activity,” Mueller told Blockworks.
Gensler mentioned the SEC’s settlement with BlockFi, for example, noting the crypto company’s lending product was deemed a security. BlockFi agreed in February to pay $100 million in penalties.
“We note the clamor in the crypto and DeFi markets for more specificity from the chairman as to how to proactively comply without lengthy reviews or the risk of after-the-fact enforcement action,” Mueller said.
More recently, the regulator charged a former Coinbase employee, along with his brother and his friend, with insider trading last month. The SEC alleged in the complaint that nine different crypto tokens are securities.
Regulation by enforcement will continue in the absence of concrete crypto legal frameworks, industry executives and lawyers have told Blockworks, as regulators seek to spotlight investor protection issues.
Gensler: Come and talk to us
The SEC chair said in the Wall Street Journal opinion piece that he encourages crypto lenders to “come in and talk to SEC staff.”
“Gary Gensler’s insistence that crypto companies meet him at the table rings hollow, when previous meetings have been followed by investigations, subpoenas and lawsuit threats,” said Kristin Smith, executive director of Blockchain Association.
Dallas Mavericks owner Mark Cuban also countered Gensler’s urging of companies to meet with the regulator in a Monday tweet.
“Come in and talk to who? Set up an appointment how? You using Calendly these days?” he tweeted. “Since you understand crypto lending/finances, why don’t you just publish bright line guidelines you would like to see and open it up for comments?”
This is such Bullshit. You didn't start the BS, pls don't continue it. If you were working on behalf of investors you make it easy for questions by investors and businesspeople to be asked and answered. You make it near impossible. Those can't afford lawyers can only guess. https://t.co/CV7WC5ZmDx
— Mark Cuban (@mcuban) August 23, 2021
Cuban’s NBA team partnered with now-bankrupt crypto lender Voyager Digital last year. He was named as a defendant, along with Voyager CEO Stephen Ehrlich and the Mavericks, in a lawsuit filed earlier this month categorizing Voyager as a “massive Ponzi scheme.”
The search for concrete rules
The SEC “continues to force a round peg through a square hole” by subjecting crypto companies to regulations that don’t make sense for the industry, Smith said.
The Digital Commodities Consumer Protection Act, proposed earlier this month by Sens. Debbie Stabenow, D-Mich., and John Boozman, R-Ark., suggests the Commodity Futures Trading Commision (CFTC) should control crypto spot markets.
John Collins, a partner at crypto and fintech policy firm FS Vector, said Gensler’s indication that the SEC would be “the cop on the beat” stood out.
“[That] reads to me that more enforcement actions are incoming and that he has no appetite to share jurisdiction of these products, projects, or whatever else, with the CFTC,” Collins told Blockworks.
Though other crypto-related legislation has been proposed, such as the Responsible Financial Innovation Act — introduced by Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., in June — industry watchers have said they don’t expect any crypto bills to pass until 2023.
“We have long supported a comprehensive regulatory framework to lay out clear rules for crypto companies,” Smith said. “But so far, Gensler’s actions have sung a different tune than his words.”