Posted 1 week ago | by Catoshi Nakamoto
During today’s Senate Banking Committee hearing, SEC Chair Gary Gensler took shots at Coinbase and stablecoins as several senators attacked him for his over regulatory approach to crypto.
Is The SEC Everyone’s Daddy? Concern Over Transparency On Crypto Regulation
Gensler revealed his aggressive plans to rein in everything from cryptocurrencies to the meme-stock frenzy spurred by friends of Bitboy Crypto, Wall St Bets. Several lawmakers denounced Gensler’s agenda for stifling innovation, increasing costs for investors, and statements about most cryptocurrencies being a security. Gensler attacked stablecoins, specifically stating that “they may will be securities.”
John Kennedy, a Louisiana Republican, even hilariously asked Gensler if he was everyone’s daddy.
:“As to the people and the companies that you regulate as chairman of the SEC, do you consider yourself to be their daddy?” Kennedy asked Gensler. “Why do you impose your personal preferences about cultural issues and social issues on companies, and therefore their customers and their workers?”
Senator Pat Toomey a senator well known to be pro-crypto made it abundantly clear that he disapproved of the SEC’s approach against Coinbase. The Pennsylvania Republican expressed the agency was trying to regulate digital tokens through “enforcement,” action rather than clearly defining rules. He added that the SEC hasn’t been transparent with crypto companies about how it determines whether digital assets are securities which are subject to tough investor-protection rules by the SEC.
Toomey (R-Pa) further told Gensler, he was “concerned the SEC hasn’t provided a sufficient definition as to how it would apply the Howey test” (a reference to the Supreme Court ancient decision that supposedly defines the four criteria for identifying if an investment is a security.)
“To me a stablecoin doesn’t meet the second prong of the Howey Test, that there has to be an expectation of profits from the investment,” Toomey said. “If it doesn’t meet the Howey Test, it looks to me like it’s not a security. Now maybe you’ve got a good argument for why some are and some aren’t, but…I think we need to have clarity on this.
“I think we ought to have that publicly and we certainly shouldn’t be taking enforcement action against somebody without having first provided that clarity,” Toomey added.
Gensler Says Small Number Of Cryptos Aren’t Securities; Shots At Coinbase
Gensler said he thought there were only a “small number” of cryptocurrencies that don’t need to be registered with the SEC.
One of crypto’s favorite senators, Cynthia Lummis (R-Wy), repeated Toomey’s concerns about a lack of transparency for rules governing crypto asking if Gensler was in favor of responsible financial innovation.
Gensler responded that he is strongly in favor of innovation, adding that the SEC has encouraged newer companies to engage with the agency.
“I’ve said ‘come in’ whether it’s in crypto or elsewhere,” Gensler said.
The SEC chair also later took a direct hit against Coinbase expressing that “many of the assets currently listed Coinbase may be securities.” He further stated that Coinbase doesn’t not currently have a license to operate as a stock exchange “even though they have dozens of tokens that might be securities.”
Gensler’s shots fired at Coinbase are important as the comments were made without a direct question about securities. The comments were made in reply to a question by crypto critic Sen. Elizabeth Warren (D-Ma) who asked whether customers could be harmed when exchanges like Coinbase are unable to operate under high trading volume. Gensler also told Warren again that the SEC needed more staff and funding to police the industry.
“There are 6,000 projects and while some are commodities, many are securities under the law,” he said. “Right now there are many individuals in this country who’ve been hurt … There will be more [harm] since this crypto area is trying to stay outside the investor protection perimeter.”
Gensler made his position clear by discussing current laws, which he said could be changed by Congress.
“This Congress could change the laws, but the laws we have right now have a very broad definition of a security.”
As Bitboy Crypto reported, last month, the SEC chair echoed much of the same stating he believed “many tokens may be unregistered securities, without required disclosures or market oversight.”
Coinbase Versus SEC
The statement that Coinbase may be selling securities without a license comes after Coinbase’s CEO, Brian Armstrong, lashed out at the SEC on Twitter, disclosing that the SEC had threatened to sue the company. The threats were made against the company going forward with a plan to launch its product called Lend that would pay consumers 4% interest on their USDC stablecoin they choose to lend out.
In a clear, overreach the SEC also requested all of Coinbase’s customers’ information who signed up for its forthcoming “Lend” program. The SEC sent a Wells notice to the exchange — which essentially means the agency aims to bring a lawsuit against Coinbase if it launches its “lend” product. The overall picture here is that the SEC is saying “lending” is a security. America’s current securities law classes lending as a security with the exception of bank and some other institutions.
Ironically the law is meant to protect investors from unauthorized “investment contracts,” in a common enterprise but banks are exempt and can offer customers lending. The SEC argues that Coinbase’s “lend” program is an investment contract that requires the effort of others who have an expectation of profit or yielded return. Brian Armstrong the CEO of Coinbase, argues that their lending program isn’t a security stating that Lend does not constitute an investment contract. Coinbase expresses that its customers are lending USDC in their accounts with a pre-existing relationship with Coinbase.
This also comes after the U.S. Treasury met with financial industry executives and some representatives of the crypto industry to discuss regulation, risks, and benefits of stablecoins as Bitboy Crypto previously reported.
At an Aspen meeting last month, Gensler stated that the SEC was looking at at least seven different industries within crypto, including — initial coin offerings, trading venues, lending platforms, DeFi, stablecoins, custody, and exchange-traded funds. If U.S. regulators do over-regulate they won’t kill the crypto industry. However, they would completely chase innovation and innovators to other countries, slamming the door on start-up businesses literally overnight. This would put the U.S. backward in the rat race for technological dominance putting us behind other countries that embrace blockchain and financial technology.
You can watch the full hearing below.
Bitcoin is currently trading at [FIAT: $46,761.38] UP +3.6% in the last 24 hours according to Coingecko at the time of this report.