SEC Restructuring: Gensler’s Reign Over?
In 2023, SEC Chair Gary Gensler decided to take on the entire cryptocurrency industry. Unable to reach decentralized exchanges and the DeFi sector (since they are virtual smart contracts deployed in a virtual environment), he turned all his focus towards centralized exchanges and top crypto assets.
In Gensler's view, a clear pattern has emerged: Bitcoin is a decentralized crypto asset, whereas nearly all altcoins are securities. Hence, they fall under the jurisdiction of the SEC, or, in other words, his personal area of responsibility.
However, it appears that the roster of potential “securities” is not confined to one but spans four distinct lists of crypto assets! And there's no assurance that even the most extensive of these is the final iteration.
Gary Gensler's Four “Blacklists”
On June 10, 2023, the Securities and Exchange Commission (SEC) launched lawsuits against two of the world's largest centralized crypto exchanges, Binance and Coinbase. These were individual lawsuits and, interestingly enough, they contained different lists of cryptocurrencies that the SEC classifies as securities.
The lawsuit against Binance included just four cryptocurrencies: Binance Coin (BNB), Binance USD (BUSD), Cosmos (ATOM), and COTI (COTI).
In the lawsuit against Coinbase, suspicions of being “securities” extended to seven other crypto assets: Near Protocol (NEAR), Internet Computer (ICP), Chiliz (CHZ), Flow (FLOW), Nexo (NEXO), Dash (DASH), and Voyager Token (VGX).
The general list of “securities” featured Cardano (ADA), Polygon (MATIC), Solana (SOL), Filecoin (FIL), Algorand (ALGO), The Sandbox (SAND), Decentraland (MANA), Axie Infinity (AXS).
However, there was a fourth, more extensive list. Here, Gensler and Co. decided to consider all assets that could potentially be securities based on the results of the archaic and inadequate Howey test. This test was implemented in the U.S. mid-20th century when computers, the internet, and cryptocurrencies did not exist. Thus, judging new class assets by “gold standard” times criteria is akin to comparing an airship and a SpaceX Starship based solely on their ability to fly. Yet, this did not deter the SEC. But let's return to the fourth list.
This list encompassed a whopping 67 different crypto assets, whose capitalization collectively accounts for 10% of the entire cryptocurrency market. Among the coins is Ripple, which the SEC has been litigating against for a long time, trying to establish that this asset is a security. So far, without success.
SEC Policies Cause Unrest
The cryptocurrency market heavyweights find themselves embroiled in lawsuits instigated by the SEC, triggering anxiety among investors and businesses. As a response, investors have begun to withdraw assets from American crypto exchanges, with businesses contemplating a shift to jurisdictions more welcoming to cryptocurrency. Through its seemingly reckless actions, the SEC has unwittingly instigated a reformation of an entire asset market, one that serves and profits from the IT industry, all while paying taxes to the US Treasury.
A growing concern is apparent among U.S. judges and lawmakers, including senators and congressmen. The initial response from the court was to reject the SEC's plea to freeze Binance US assets, a move which could have spurred further capital outflow and investor flight.
Senator Bill Hagerty took to public forums and courtrooms to voice his accusations of Gary Gensler's ulterior motives, stating:
Make no mistake, the SEC's attempts to undermine the digital asset industry is a deliberate move–Gary Gensler has made it clear that he wants to see private cryptocurrencies fail to make way for a CBDC.
Sen. Bill Hagerty’s tweet
Bill Hagerty's tweet has provoked a reaction, and now, House Republican Whip Tom Emmer, along with fellow party member Warren Davidson, has introduced a bill to Congress calling for the dismissal of SEC Chair Gary Gensler and the reformation of the agency.
The proposed “SEC Stabilization Act” aims to put an end to further misuse of power by Gensler.
American investors and industry deserve clear and consistent oversight, not political gamesmanship. The SEC Stabilization Act will make common-sense changes to ensure that the SEC’s priorities are with the investors they are charged to protect and not the whims of its reckless Chair. Thank you, Representative Davidson, for leading this important effort to restore sanity at the SEC
said Emmer
This action sends a clear signal to businesses and investors that Congress, along with select members of the U.S. Senate, perceives the SEC's activities as gross violations and is committed to rectifying the situation. Given that the Republicans hold the majority in Congress, it's highly likely the bill will pass. The waiting game now begins. Gary Gensler has truly tried everyone's patience!
Final Words
Gensler has chosen not to classify Ethereum's coin (ETH), which emerged from an ICO and pre-mine, and most stablecoins (excluding BUSD), many of which were created using Ethereum's ERC-20 standard, as securities.
The representatives from the cryptocurrency project LBRY have accused the Ethereum team of paying off the SEC to avoid any enforcement actions against ETH. They argue that this alleged bribe is the reason behind the regulator's decision to exclude Ethereum from any punitive measures or “blacklists.” LBRY representatives believe that U.S. regulators are thoroughly corrupt and will only refrain from pursuing specific crypto assets or exchanges if they are compensated.
Michael Saylor, the co-founder of MicroStrategy, offered an interesting perspective on this issue. He forecasted that the SEC's enforcement actions would compel the industry to focus entirely on Bitcoin, should the regulator's approach remain unchecked.
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