With US lawmakers from across the political spectrum increasingly willing to criticize the Securities and Exchange Commission’s approach to crypto regulation, Chairman Gary Gensler is digging in his heels.
Defending his agency’s position to the House Financial Services Committee (HFSC), Gensler repeated the SEC’s line that most crypto tokens are subject to securities laws, and that the sector is rife with non-compliance.
In what has become something of a catchphrase for the SEC Chair, in preprepared testimony on Wednesday, Gensler stated that “the vast majority of crypto tokens likely meet the investment contract test.”
However, Gensler’s interpretation that cryptocurrency sales constitute an “investment contract” stands on increasingly shaky legal ground.
Significantly, in the case of SEC v. Ripple Labs, the court found that Ripple’s initial sales of XRP tokens to institutional investors constituted an investment contract.
However, it ruled against the SEC’s assertation that Ripple’s XRP sales on crypto exchanges are also subject to securities laws. Likewise, the court judged that Ripple’s use of XRP to pay employees and contractors was not illegal.
In August, a federal appeals court also ruled against the SEC in its bid to shut down Grayscale’s application to list a spot Bitcoin Exchange Traded Product.
“The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products,” wrote Judge Neomi Rao in the court’s opinion .
In the wake of the Grayscale decision, on Tuesday, September 26, bipartisan members of the HSFC wrote a letter to Gensler the SEC’s continued resistance to spot Bitcoin Bitcoin ETPs.
“Congress has a duty to ensure the SEC approves investment products that meet the requirements set out by Congress,” the letter noted. “We urge you to approve the listing of Spot bitcoin ETPs immediately,” it concluded.
During opening remarks , for Wednesday’s HFSC hearing, Congressman Patrick McHenry, who chairs the committee, lambasted Gensler for his “crusade against the digital asset ecosystem.”
Pointing out that the committee raised similar concerns during a previous hearing, he said “during the last five months you have done nothing to remedy the legitimate and often bipartisan concerns expressed by this committee.”
“That is disgraceful,” he said, adding that “our patience is wearing thin.”