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03 Dec 2021

Gensler hedges on classifying cryptocurrencies as securities in response to Senator’s questions

Securities and Exchange Commission chairman Gary Gensler is keeping mum on new guidance for crypto tokens.

After a hearing before the Senate Banking Committee in September, the committee's leading Republican, Sen. Pat Toomey, wrote Gensler a series of follow-up questions on cryptocurrencies.

In responses released on December 3, Gensler stuck to the broad interpretation of existing laws and the Howey and Reeves tests that he has promulgated since taking office. Effectively, Gensler argues that the SEC does not need to specify which crypto assets are and are not securities, as those laws and court cases established broad parameters — an attitude that has ruffled many in the crypto industry.

Following up on questions from the hearing, Toomey asked Gensler to "identify the specific characteristics that distinguish a cryptocurrency that is a security from one that has been deemed a commodity."

Gensler in turn cited those earlier laws, saying: "Thus it depends upon the particular facts and circumstances, whether any particular financial instrument, including a crypto asset, is being offered or sold as a security." He likewise avoided a question from Toomey that proposed a hypothetical dollar-backed stablecoin with reserves in FDIC-insured U.S. banks and asked whether that token would also be a security. 

Regarding Gensler's responses, Toomey said: “Chairman Gensler’s failure to provide clear rules of the road for cryptocurrencies underscores the need for Congress to act.”

Interestingly, Gensler has suggested that he agrees with the need for Congress to act on a regulatory framework for crypto. The SEC during his tenure has, however, been more interested in bringing major trading and lending platforms to heel than in pursuing specific token issuances. Likely, this is because the SEC under his predecessor, Jay Clayton, largely ended the ICO boom. 

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