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Key Points From Gary Gensler's Testimony
The Congressional hearings took on a familiar pattern of accusation and evasion, but seem to be slowly building to a denouement.
Yesterday, Gary Gensler, Chair of the SEC, testified before the House Financial Services Committee. Led by Republicans, this was an opportunity for members of Congress to lambaste Gensler on a number of issues, but particularly his treatment of the crypto sector and "rulemaking by enforcement" approach.
An Agency In Trouble
The SEC has suffered a number of defeats in the courts recently, with one judge concluding the agency's grounds for denying Grayscale's request to convert GBTC into a spot BTC ETF were "arbitrary and capricious", and another finding that the majority of XRP sales do not constitute the sale of unregistered securities. There has been division within the agency, with two commissioners vocally dissenting from harsh rulings against the NFT space. More generally, there is a growing sense within Congress that the SEC is not fit for purpose, and needs reforming—starting with firing Gensler himself. This week, a bipartisan group urged the regulator to apply the rules fairly and approve a spot ETF, for the good of American investors and capital markets.
None of this appears to matter to Gensler, who appears determined to put his pride first and go down with the ship. Here are some key takeaways from his testimony in Congress yesterday, where he was accused of being opaque, unfair in his application of rules, and borderline corrupt.
Evasion Is His First Reaction
In the exchange, Gensler admitted that Bitcoin is not a security, but refused to say whether it is a commodity. The exchange recalls a previous Congressional hearing when he stated that the rules were clear, but then avoided the question of whether ETH was a commodity or a security.
He's Deliberately Obstructive
Congressman Patrick McHenry threatened the SEC with a subpoena if they did not submit the documentation relating to the agency's dealings with FTX that Congress requested back in February. The SEC has not sent anything that is not already public, evading Congressional oversight.
His Days Are Likely Numbered
Warren Davidson's SEC Stabilization Act would see the agency overhauled, retaining the team of commissioners but removing the role of Chair and bringing in a sixth commissioner, so there would be three from each party. Gensler is "making the case for this bill easier every day", by the rule-making that is driving businesses and capital out of the country in search of jurisdictions that offer clarity.
He's In The Pocket Of Financial Giants
Gensler was accused of being "relentlessly loyal to the biggest institutions at the expense of everyday Americans". Small entities are ignored and stalled, while the largest and wealthiest corporations have his ear.
This has significant implications at the current time, with a number of organizations seeking to launch Bitcoin ETFs. Will Gensler allow the likes of BlackRock to go first, despite being relatively late to the game, while overlooking those with less clout, even though they applied first and have been trying to work with the SEC for years?
These proceedings are partly political theater, but also an important way in which the treatment of digital assets within the US—which has the largest and most vibrant capital markets in the world—is being brought to greater public and Congressional attention.
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