U.S. Securities and Exchange Commission Chair Gary Gensler was pressed by law students and a former Democratic commissioner at the agency over his views on regulating cryptocurrency.
At a fireside chat on Wednesday with former SEC Democratic Commissioner Robert Jackson Jr. at the New York University Law Institute for Corporate Governance and Finance, asked Gensler about the agency's approach to digital assets. The SEC has often cited the Howey Test in crypto, which is a 1946 U.S. Supreme Court case used to determine if an asset qualifies as an investment contract and, therefore, a security.
"Is that the way we should oversee cryptocurrency, by trying to apply a 1940s Supreme Court decision to this technology?" Jackson asked.
Gensler stood his ground.
"Look, it's the law of the land and I took an oath of office to do it, but it also protects investors," Gensler said. "At the core of the securities laws, there is a basic concept — you all get to decide what you want to invest in."
That could be green energy or artificial intelligence, but either way, disclosures are necessary, Gensler said.
The SEC has brought a number of enforcement actions against big names in the crypto industry over the past few years, including FTX, Binance, Kraken and Coinbase. Meanwhile, Gensler has consistently warned that crypto exchanges must register with the agency and has said that most cryptocurrencies are securities. However, crypto firms have argued it's not possible to register with the agency, in part because rules were made for more traditional entities that are different from the digital asset industry.
On Wednesday, Gensler also pointed toward fraud in the crypto industry, citing a report from the FBI last month that recorded a 45% uptick last year in losses tied to crypto since 2022.
"With all respect, the leading lights of this field in 2022 are either in jail or awaiting extradition right now," Gensler said.
Roberts also asked Gensler if it would be better to create a regulatory framework for digital assets. Gensler said that framework already exists.
"Just because people don't like the law doesn't mean there's no law," Gensler added.
A law student also asked Gensler about the SEC's term crypto asset securities and whether the agency should be more clear about its position. The SEC said, in a recently amended complaint, that when the agency refers to crypto asset securities, it’s not referring to the crypto asset itself but the full set of contracts, expectations and understandings of the sales of such assets. The agency added that it "regrets any confusion."
Gensler said the agency has been clear over the years, including when former SEC Chair Jay Clayton headed the agency.
"Since then as well, the [SEC] have spoken clearly in a consistent voice and the courts have as well," Gensler said.
Another student asked what would happen to the utility of tokens if they were to become compliant with the SEC.
The SEC is "merit-neutral," Gensler said, and investors get to decide the utility. Gensler also noted that tokens are not likely to become a currency.
"It's unlikely this stuff is going to be a currency," Gensler said. "It's going to have to show its value through disclosure, through use."
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