Joseph Kennedy, the first Securities and Exchange Commission Chairman, lived by simple credo: "No honest business need fear the SEC."
Bear in mind, Kennedy was not a popular choice for the commission's top spot, with future SEC Chairman Jerome Frank saying the appointment was "like setting a wolf to guard a flock of sheep."
Gary Gensler, the current SEC chair, recalled Kennedy's line about honest businesses during a Sept. 8 address about cryptocurrency.
'Working With Congress'
"Nothing about the crypto markets is incompatible with the securities law," he said. "Investor protection is just as relevant, regardless of underlying technologies."
Gensler said that he believes majority of crypto tokens are securities because, in general, "the investing public is buying or selling crypto security tokens because they’re expecting profits derived from the efforts of others in a common enterprise."
Regulatory oversight is a critical issue in the cryptocurrency sphere, and Gensler said that the Commodity Futures Trading Commission (CFTC) needs greater authority to oversee and regulate crypto non-security tokens and related intermediaries.
Created in 1974, the CFTC regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options.
"I look forward to working with Congress to achieve that goal consistent with maintaining the regulation of crypto security tokens and related intermediaries at the SEC," Gensler said.
Reaction to the Gensler's CFTC comments was varied among cryptocurrency analysts.
Bringing Clarity
Chris Kline, CRO and co-founder of Bitcoin IRA, a digital asset IRA technology platform, said Gensler’s comments about the CFTC bring "the clarity the industry has been anticipating all year."
"A clear understanding of who regulates what and how these assets will be defined moving forward will allow innovation to thrive," he said. "Gensler’s comments follow the President’s executive order from earlier this year, which is a step in the right direction for clearer guardrails ahead."
Kline said lawmakers can play a critical role in keeping citizens informed and defining key rules for crypto that don’t exclude innovation.
"Regulation can essentially offer greater investor support and protection from scams and fraud in the form of reassurance," he said "It could also lead to stability in a volatile marketplace, which would protect investors and encourage future investment."
"My favorite part about all this are the conversations being had in the legislative setting, something you wouldn’t have seen a couple of years ago," Kline added.
David Lesperance, managing partner of immigration and tax adviser Lesperance & Associates, said Gensler "sent a very clear message to the crypto community that of the more than 10,000 tokens and various stablecoins on the market, most are securities and will be regulated as such."
Traditional Turfs
"He emphasized that the SEC and the CFTC are each going to regulate their traditional turfs and when a particular crypto intermediary was engaging in activities where both parties would normally be involved, then it was up to the entity to register with both the SEC and the CFTC," he said. "He noted that such dual registration already existed in the broker-dealer space and in the fund advisory space."
Lesperance added that "the days of the crypto community claiming that they are different or special with regards to securities regulation are over."
"Next on the chopping block will be illusions that crypto is immune to the tax reporting, anti-money laundering and sanctions regulations that are part of the daily life for the non-crypto intermediary world," he said.
Austin Kimm, director of strategy and investments at Choise.com, said that "Gary Gensler has always been notoriously anti-crypto, however, this is the SEC chairman’s most audacious statement yet."
"Several bills have already been introduced to Congress that would give the CFTC greater authority over crypto," Kimm said. "Without a doubt the latest developments open up the danger of bad regulations being passed that could harm the growth and adaptation of cryptocurrencies."
Frank Corva, senior digital assets analyst with Finder, said that "Gensler has shared that the only digital asset he feels is undoubtedly a commodity is Bitcoin."
'New Framework for Regulation'
"And his suggestion that the CFTC should regulate Ether, as well, is an indication that he feels that ETH, too, is a commodity," he said. "Based on some of his recent comments, it seems that Gensler is in the early stages of setting up an argument that every other crypto asset on the market is then a security. This is not logical, though."
Corva said that if something like ETH is regulated like a commodity by the CFTC, then this means that other major Layer 1 blockchain tokens like Solana, Cardano and Avalanche should also fall under the CFTC’s jurisdiction.
Layer 1 is the main blockchain network in charge of on-chain transactions, while Layer 2 is the connected network in charge of off-chain transactions.
Corva explained that tokens for Layer 1 blockchains are the currencies for these networks, not securitized stakes in the networks or the companies or organizations that may govern them; in other words, "these tokens are the fuel for transactions on these networks, not a fractionalized share of the networks."
"Gensler may not like it, but if crypto assets are to be regulated fairly, then he likely won’t be able to paint with such a broad brush and declare the vast majority of them securities," Corva said. "He’ll have to acknowledge that this technology and the way it captures value is new and, therefore, may need a new framework for regulation."
