SEC Chair Gensler’s Refusal to Confirm Ether as a Security Sparks Controversy in Congressional Hearing

U.S. SEC Chair Gensler Refuses to Say Whether Ether is a Security

The Chair of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, refused to confirm whether ether, the second-largest cryptocurrency by market capitalization, was a security during a nearly five-hour hearing held on Tuesday.

During the marathon hearing, Gensler was bombarded with questions about his agency’s proposed rules, the time given for public feedback, the approach to crypto companies hoping to operate in the United States, and non-crypto issues, including proposed disclosure requirements around climate change and audit trails.

Gensler’s appearance before the House Financial Services Committee marked his first since the current Congress took over and his first in over a year.

“Congress must provide clear rules of the road to the digital asset ecosystem because the regulators cannot agree,” said Committee Chairman Patrick McHenry (R-N.C.) in his opening statement. “Regulation by enforcement is not sufficient nor sustainable. Your approach is driving innovation overseas and endangering American competitiveness.”

On the other hand, Ranking Member Maxine Waters (D-Calif.) applauded Gensler and his staff for their efforts to go after crypto criminals, despite claiming that the hearing should focus on more pressing issues like recent bank failures, a housing crisis, and the potential debt ceiling default.

Contentious Points in the Hearing

One of the most contentious points in the hearing came early on when McHenry asked Gensler to confirm whether ether was a security. Gensler repeatedly said “it depends on the facts and the law” during the line of questioning, refusing to provide a clear answer.

Joshua Ashley Klayman, the head of Fintech and head of Blockchain and Digital Assets at Linklaters, argued after the hearing that Gensler’s response was a positive sign for the industry, as he didn’t immediately declare ether as a security or claim that “everything other than bitcoin” was a security.

Gensler’s responsiveness or perceived lack of responsiveness to Congressional inquiries outside the hearing was also questioned. Congressman Bill Huizenga (R-Mich.) asked Gensler if the SEC would provide its internal staff memo recommending an enforcement action against FTX and Sam Bankman-Fried. Gensler said investigative documents are meant to be confidential, and Huizenga responded that he would follow up on the matter.

A number of lawmakers also questioned Gensler about the perceived lack of regulatory clarity for crypto companies. Gensler told Congressman Brad Sherman (D-Calif.) that companies needed to “come in and comply and register to protect the investing public.” However, Congressmen Warren Davidson (R-Ohio) and McHenry said that the regulator had not provided the necessary clarity for the industry to do so, citing Gensler’s lack of a definitive answer on whether ether is a security as an example.

Other lawmakers, such as Congressman Stephen Lynch (D-Fla.), said that there was a “fair amount of guidance and clarity,” although “it’s just not clarity that the crypto industry wants,” pointing to the SEC’s enforcement actions and recent guidance, as well as joint statements by various federal regulators.

Overall, the hearing was a significant event for the crypto industry, as Gensler’s comments will likely have a substantial impact on the regulatory framework of the sector in the United States.