Gary Gensler’s Securities and Exchange Commission is filling the crypto regulatory void, and the industry a
nd its backers on Capitol Hill have so far been unable to check him.
The tide was supposed to turn when Republicans gained control over the House last November. Finally, the thinki
ng went, there would be restraints on the SEC chief.
Yet after six months of hearings, initial plans and fiery statements about regulatory overreach, GOP lawmakers have y
et to formally introduce their key proposals. The 2024 campaign seas
on is about to kick into gear, and that means less time to debate complex policy issues and garner support from Democrats, who control the US Senate.
“Even if they do pull a rabbit out of the hat and get this out of the committee in a bipartisan way, get this to a floor vo
te, get it out of the House, there’s still going to be a significant hurdle to overcome with the Senate,” said Ron Hammond, directo
r of government relations at the Blockchain Association, a crypto trade group.
Although the SEC faces significant challenges in court, its power over the asset class appears to be growing. In t
he absence of new legislation, the watchdog keeps asserting jur
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isdiction and claiming the industry must abide by its strict investor-protection rules.
Wall Street’s main regulator has signaled that it considers everything from crypto trading platforms to the v
ast majority of tokens as under its authority. The agency has recently sued two of the largest crypto exchanges, c
asting a cloud over the entire industry. The SEC also keeps thwarting plans for a Bitcoin exchange-traded fund and has sought sway over stablecoins.
Overreach?
Crypto backers argue that the SEC’s approach is mistaken and an overreach. They say many tokens are technic
ally commodities under US rules and shouldn’t be subject to onerous — and expensive — SEC regulations.
Hopes for a pullback have been pinned largely on a plan from Patrick McHenry, a North Carolina Republican who leads the House Financial Services Comm
ittee, and Agriculture Committee Chairman Glenn Thompson, a GOP lawmaker from Pennsylvania. Their panels may a
dvance the measure later this month. A draft of that bill calls for more clearly delineating when digital assets are commodities or securities, meaning the SEC could
have less discretion and more assets would likely be overseen by the Commodity Futures Trading Commission.
Industry advocates generally prefer their assets to be regulated by the CFTC, which they view as being more flexi
ble and willing to work with the industry. The derivatives regulator has said, however, it would be a tough overseer, poin
ting to the dozens of enforcement actions it brought against the sector.
Under the McHenry-Thompson plan, a token’s classification would depend largely on whether the blockchain network it’s affiliated with is sufficiently decen
tralized. The bill would also offer a pathway for assets that begin as securities to eventually be regulated as commodities, and require the SEC to modify rules to better accom
modate crypto trading platforms.