The policymaker has continued to stake a claim for the crypto asset industry for his agency tasked with regulating securities in the United States.
According to Gensler, cryptocurrencies should be regulated the same way as securities. In a speech on reducing risk and increasing transparency of derivatives at the International Swaps and Derivatives Association Annual Meeting on May 11, he said:
“Most crypto tokens involve a group of entrepreneurs raising money from the public in anticipation of profits — the hallmark of an investment contract or a security under our jurisdiction,”
Security or Not Security
Gensler is angling for full control over the regulation of the crypto sector, which is likely to result in harsh restrictions for companies and investors in the country.
He claimed that very few crypto assets operate like commodities or digital gold, which is why his agency should have jurisdiction over them rather than the Commodities Futures Trading Commission (CFTC).
“Most crypto tokens are investment contracts under the Supreme Court’s Howey Test,” he added.
The Howey Test refers to a 1946 U.S. Supreme Court case for determining whether a transaction qualifies as an investment contract. Under U.S. law, an investment contract exists if there is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” Gensler believes this is the case for most digital assets.
If American lawmakers determine cryptocurrencies to be securities, companies dealing with them would come under the stringent regulation, and registration requirements that firms offering securities are subject to.
According to Gensler, if a derivative contract known as a swap is based on a crypto asset, it is a security-based swap and subject to SEC registration, he added:
“It’s important to recognize that if the underlying asset is a security, the derivative must comply with securities regulations.”
The SEC Chair also wants to see decentralized exchanges that offer derivatives registered with the agency.
Those opposing this line of thinking, such as Senator Cynthia Lummis and Senator Kirsten Gillibrand, believe that crypto assets are commodities and should be regulated by the CFTC.
Crypto Market Continues to Crash
The call for tighter regulations comes at a time when crypto markets are falling hard into what could be another prolonged bear market.
The cumulative market cap has been hammered a further 13% on the day in a fall to $1.2 trillion, its lowest level in about a year.
Featured Image Courtesy of Bloomberg