In a recent Congressional hearing, Securities and Exchange Commission (SEC) Chair Gary Gensler faced intense scrutiny and criticism from lawmakers regarding his oversight of the financial markets. The hearing, held on September 27, highlighted both the highs and lows of the session.
One memorable moment came from U.S. Representative Andy Barr, who likened Gensler’s regulatory approach to “kneecapping” the U.S. capital markets with excessive red tape. Barr referenced Gensler’s previous testimony, where he emphasized the importance of maintaining the U.S. as a leading global capital market. Barr’s response was colorful: “With all due respect, Mr. Chairman, if the U.S. capital markets are a gold medalist, you are the Tonya Harding of securities regulations.”
Representative Warren Davidson also joined the chorus of critics, expressing his hope that the Biden administration would remove Gensler from his position. Davidson accused Gensler of promoting a “woke” political and social agenda while abusing his role as SEC chair. He cited the SEC Stabilization Act he introduced with another representative as a potential solution and concluded, “You’re making the case for this bill every day you’re acting as the chairman.”
Notably, Gensler faced questions about the classification of Bitcoin. When asked by U.S. House Committee on Financial Services Chair Patrick McHenry whether Bitcoin qualifies as a security, Gensler finally conceded that Bitcoin did not meet the legal criteria known as the Howey test, implying that it is not a security.
However, McHenry pressed further, suggesting that Bitcoin might be considered a commodity. Gensler avoided a direct response, stating that the determination of whether Bitcoin is a commodity falls outside the scope of U.S. securities laws. McHenry also accused Gensler of trying to stifle the digital asset ecosystem and of lacking transparency about the SEC’s connections with FTX and its former CEO, Sam Bankman-Fried.
Another intriguing exchange occurred when Representative Ritchie Torres questioned Gensler about what qualifies as an investment contract. Torres sought to test Gensler’s knowledge by asking whether purchasing a physical Pokemon trading card could be considered a securities transaction. Gensler’s initial response was uncertain, stating, “I don’t know what the context is.”
However, he eventually concluded that it is not a security if purchased in a store. Torres then posed a more complex scenario, asking whether purchasing a tokenized Pokemon card on a digital exchange via a blockchain would constitute a security transaction. Gensler’s response remained vague, indicating he would need more information to make a determination. He clarified that the core of the Howey test is when the investing public can anticipate profits based on the efforts of others. Torres criticized Gensler’s responses as “evasions.”
Amidst these intense exchanges, keen observers noted a Coinbase “Stand With Crypto” logo in the background behind Chair Gensler. This logo represented a Coinbase-led initiative launched in August, advocating for cryptocurrency legislation in the United States. Coinbase further promoted its cause with a “Stand with Crypto Day” event in Washington, D.C., on September 27, aiming to push for improved cryptocurrency innovation and policy.
In conclusion, the recent Congressional hearing with SEC Chair Gary Gensler was marked by heated exchanges and criticisms from lawmakers, with questions about Bitcoin’s classification, Pokemon trading cards, and calls for regulatory changes in the cryptocurrency space adding to the drama. Coinbase’s active presence in advocating for cryptocurrency legislation also underscored the ongoing debate around digital assets in the United States.