Unmissable Senate Hearing Puts Gensler & the SEC in Crypto Hot Seat

22 Sep 2023 by Rory Kejzerko 5 min read

Since assuming his role as the U.S. Securities and Exchange Commission’s (SEC) Chair in 2021, Gary Gensler has had his fair share of tussles with the crypto and DeFi space.

Most recently, his undeniable distaste for the new area of finance was put into question at a hearing hosted by the Senate Banking Committee in Washington D.C. last week.

The hearing in question was entitled ‘Oversight of the U.S. Securities and Exchange Commission,’ which saw 18 US Senators pose questions to Gensler regarding topics of traditional markets, the economy, and of course, the SEC’s crackdown on the crypto landscape.

Gensler’s Crypto Answers

Before any questions were put forward, Gary Gensler - who rather ironically was formerly addressed as ‘The Honorable Gary Glenser’ on his name tag (as standard procedure for those in a position of government or diplomacy) - opened by saying that his following words would be his own opinions, as opposed to being those of the SEC.

Source: https://www.youtube.com/watch?v=YjfQ6c9N6-M

After making such statement, he was then faced with a plethora of crypto-related questions from the attending Senators, where collectively, varying sentiments regarding crypto’s place in society were relayed by the government officials.

Here is a rundown of what crypto-related antics unfolded throughout the hearing…

The first Senator to introduce the topic of DeFi was Senator Sherrod Brown, whom Gensler replied to by relaying what we already know about his crypto stance… that is, that all tokens that are classed as securities must disclose information in accordance with the SEC’s guidelines (which, as we know, should be all cryptos excluding Bitcoin (BTC) according to Gensler).

Senator Catherine Cortez Masto then asked a simple question regarding the SEC’s workforce, and whether it has the ability to proficiently regulate the crypto industry. As a gesture of sarcasm, Gensler responded by saying no, as the crypto space is ‘rife with more misconduct’ than any industry he’s ever witnessed.

In getting onto the all-important topic of Spot Bitcoin ETFs, Senator Bill Hagerty asked Gensler what it would take for the revolutionary asset class to be approved by the SEC. However, in putting a dampener on what could’ve been a stand-out takeaway from the hearing, Gensler provided zero new alpha on the matter, as he simply stated that the SEC was still reviewing existing applications.

The Senate’s most bullish member, Senator Cynthia Lummis posed multiple crypto-related questions to Gensler, many of which centred around crypto custody by banks. As of now, banks are the only recognised crypto custodians of the SEC, where further, the regulatory body has essentially warned the banking industry that it’s unsafe to custody crypto as the assets have to be documented on balance sheets as if they were any other asset class.

Further, with a mammoth load of ordinance in play, Lummis questioned the ridiculousness of such system, stating that banks are being subject to ‘unnecessary’ amounts of regulation. In response, Gensler cited the collapse of crypto lending giant Celsius as the reason behind the current system.

Other Crypto Senator Statements

In addition to posing questions to Gary Gensler, Senators also had the opportunity to make their own statements.

Here, Senator Sherrod Brown shed light on the risks in which ‘new technologies’ (i.e. crypto) possess when it comes to ‘further concentrating’ the powers of Wall Street. This is due to the possibility that Wall Street entities could acquire (and hold or stake) the majority of crypto funds in the future, therefore leaving nothing for the rest of us. Although a bearish sentiment, this is a very real possibility that would most-certainly blight the core mission of DeFi.

In turn, Brown went on to echo Gensler’s concerns over ‘rife’ scams within the space, dubbing it a ‘dangerous’ proposition whilst also claiming that FTX won’t be the last crypto exchange to crash and burn.

On the other hand, Senator Tim Scott didn’t hesitate in slamming the SEC for its lack of transparency, logical leadership, hostility towards new innovations, and its focus on topics that aren’t necessarily related to finance.

Interestingly enough, the Senate’s most notorious anti-crypto member Elizabeth Warren didn’t mention crypto throughout the hearing, as instead she focused on US private equity.

Conclusive Thoughts On the Hearing

After watching the hearing, one could argue that the general tones of many Senators weren’t as blatantly ‘anti-crypto’ as previous years, which we could assume may be because being an explicit DeFi opposer isn’t necessarily a trendy stance anymore.

However, in likening the SEC to a gold medalist that needs to continue training in order to retain their medals, Gensler insisted that the SEC must continue developing new regulations to ensure the financial success of the US.

Worryingly, it’s then safe to say that the SEC’s recent losses haven’t stunted the mindset of its main man - be it those against Ripple (XRP) or Greyscale, as well as its general failure to gain traction from its suing of Binance, Coinbase, and countless other crypto and NFT projects.

Additionally, an overriding answer of ‘investor protection’ arose around many of the queries raised - a concept that’s arguably a cover-up for authorities pushing the boundaries of their powers.

Here, there may also be a concern that such excuse - as well Gensler’s frequently-cited ‘non compliance’ card - will continue to prevail, and may even begin to seep their way into crypto even further if things get really desperate (further transforming DeFi into CeFi).

In referring back to the relative lack of traction gained by the SEC thus far, perhaps its attention will begin moving away from ‘unregistered securities’ concerns and towards those of the spot Bitcoin ETF accord. However, with the colossus likes of BlackRock and Fidelity (etc.) being amongst the cohort of respective applicants, it’s hard to imagine a world where their sheer influence doesn’t get the applications over the line.

That being said, such DeFi advancements will most-definitely require revamps across crypto and traditional finance, especially regarding the oversight of spot markets and crypto custody.

If you’re interested in listening to the many other talking points from the hearing, you can watch the entire event here.

Such topics include climate disclosure rules, money market funds, the use of AI in the finance industry, US private equity, Chinese and Russian investments in US private equity, ESG governance, open-ended funds, and (even) the SEC’s regulatory powers given its lack of congressional authority.

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