Securities and Exchange Commission Chairman Gary Gensler said Tuesday that the rapid proliferation of cryptocurrencies and investment products tied to them resembled the “wild west.”
Testifying before the Senate Banking Committee on Tuesday, the SEC chief warned that many digital tokens and crypto-related investment offerings are not properly overseen because of gaps in federal regulations.
Gensler, a Democrat appointed by Biden, said while “many” cryptocurrencies are likely securities—something squarely within the SEC’s jurisdiction—others may only or also be considered commodities, which falls under the purview of the SEC’s sister agency, the Commodity Futures Trading Commission (CFTC).
He added that while federal agencies were working together to monitor cryptocurrency markets, Congress should consider legislation to expand and clarify their power to regulate the quickly growing sector.
“I’ve asked the SEC staff working with our fellow regulators, the Futures Trading Commission, the bank, regulators and Treasury as well, using our current authorities, how can we best bring investor protection to these markets?” Gensler said.
“I stand willing, also, to work with this committee and other committees of Congress if you take up any legislative initiatives.”
Federal regulators from both parties have fretted for years over the lack of clear oversight of several prominent cryptocurrency trading platforms—many of which have recently exploded in size and prominence. While the SEC, CFTC and Treasury Department may have jurisdiction over individual tokens or investment offerings, none has explicit authority over trading platforms, digital wallets, and other key parts of crypto market infrastructure.
Gensler, who chaired the CFTC under former President Obama, is far more receptive to the potential benefits and innovation spurred by cryptocurrencies than other Democrats.
While many Democratic lawmakers see cryptocurrencies as little more than vehicles for crime and speculation, Gensler has touted the potential innovation and expanded opportunities properly regulated cryptocurrencies could bring.
But Republicans expressed concerns Tuesday that Gensler may go too far in tightening rules and urged the SEC to release its own guidance for when a token may fall under its jurisdiction.
“I’m concerned that the SEC has not provided sufficient definition for and explained how it would apply the Howey test, which I think is the court standard for determining when something is an investment contract,” said Sen. Pat Toomey (R-Penn.), referring to a pivotal Supreme Court case that established what makes a product a security.