Home News “Three-Quarters of this Market Probably Not Securities”: Why has SEC Gensler Gone Back on His Word?

“Three-Quarters of this Market Probably Not Securities”: Why has SEC Gensler Gone Back on His Word?

Omar Elorfaly
Published June 13, 2023 11:20 AM

Key Takeaways

  • Gary Gensler admited most cryptocurrencies are not securities
  • What could have changed Gensler’s mind on the matter?
  • Ongoing SEC vs crypto exchange litigations, citing “trading in securities”

Gary Gensler, SEC Chair was seen in 2018 affirming that “Three-quarters of this [crypto] market is probably not securities.” Five years later, the SEC, led by Gensler is now at battle against crypto exchanges, claiming that they trade in “securities”.  What changed?

What Happened Mr. Gensler?

Before getting nominated as Chair of the US Securities and Exchange Commission by President Joe Biden in 2021, Gary Gensler  was professor of the Practice of Global Economics and Management at the MIT Sloan School of Management, co-director of MIT’s Fintech@CSAIL, and senior advisor to the MIT Media Lab Digital Currency Initiative. From 2017-2019, he served as the Maryland Financial Consumer Protection Commission chair.

Lawyers of a major crypto exchange, Binance, even claim that Gary Gensler even offered to become an advisor  for Binance back in 2019. Binance lawyers even used that claim in order to request the SEC Chair to be recused from the lawsuit Binance faces that was filed by the SEC.

Now, a video is trending on Twitter, showing Gensler affirming that “Three-quarters of this [crypto] market is probably not securities.” while using Bitcoin, Ether, LiteCoin, and Bitcoin Cash as specific examples, even saying “Why did I name those four? Because they’re not securities”.

Now, the SEC, led by Gensler is at arms against three major crypto changes, namely Binance, Coinbase, and Ripple over the matter. Binance’s lawsuit goes beyond the issue of trading securities. However, Coinbase and Ripple are each dealing with separate lawsuits filed by the SEC, accused of being illegal traders of ‘securities’.

He Says, They Say

Starting with the Coinbase lawsuit; the SEC filed a lawsuit against the crypto exchange, alleging it illegally trades in securities in the form of cryptocurrencies, such as Bitcoin. The lawsuit comes a day after the SEC files a lawsuit against Coinbase’s biggest competitor, Binance, citing a long list of charges. More importantly, the lawsuit against Coinbase comes just a few days after the second anniversary of Coinbase’s IPO (COIN) being approved by the SEC. Even more curious, records show that the government actually used Coinbase to sell Bitcoins that were seized during a prior arrest. 

As for the Ripple lawsuit, the company was sued by the SEC back in 2021, alleging that Ripple sold XRP tokens that the SEC recognizes as ‘securities’ to investors back in 2013. Naturally, Ripple and its CEO Brad Garlinghouse responded by saying that XRP is in no way a security and that the SEC is mistaken by characterizing it as so. Ripple even called upon the Hinman documents to support its claim.

The Hinman documents are a series of messages accompanied by former SEC director William Hinman’s speech in which he stated that a cryptocurrency may start off as a security, but transition into a commodity as it achieves decentralization. The SEC requested the documents stay sealed. However, the judge presiding over the case declined their request, effectively starting the process of bringing up the documents in a win for Ripple.

Should these documents be used in a case that leads to Ripple’s predicted triumph against the SEC, the SEC would have to affirm that XRP and (potentially) similar digital assets are indeed not securities. Such an outcome would play in the favor of other crypto exchanges that are currently struggling with unclear regulations put forth by the SEC, as well as, help them during their litigations against SEC & Gensler.