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As a professor at the Massachusetts Institute of Technology, Gary Gensler argued in 2018 that the creators of the cryptocurrency ether
ETHUSD,
violated federal law when they issued $18 million in tokens without registering them as securities with the Securities and Exchange Commission.
Today, as chairman of the SEC, Gensler won’t say whether he’s revised those beliefs, or whether he thinks that the second-most valuable cryptocurrency after bitcoin is still a security — a question whose answer could have wide ranging implications for the entire crypto economy, including massive exchanges like Coinbase
COIN,
and FTX.
“I’m not going to speak to any one matter,” Gensler said in a Monday interview with CNBC, in response to the question of whether he thinks ether is a security. “I’m the chair of a five-member commission that’s also a civil law-enforcement agency, so we don’t get involved in these types of public forums talking about any one project, one possible circumstance, and give legal advice over the airwaves.”
Gensler has said previously that he believes that U.S. securities and case law make it clear which digital assets are securities, and that most existing crypto tokens are being offered to the public in violation of the law.
One important set of conditions for determining whether an asset is a security is what’s called the Howey test, which states that an instrument is considered a security when it’s “a contract, transaction or scheme whereby a person invests his money in a common enterprise, and is led to expect profits solely from the efforts of the promoter or a third party.”
The relevant question for cryptocurrencies is whether they are in fact a “common enterprise.” William Hinman, the SEC’s former director of the Division of Corporate Finance, said in a 2018 speech that bitcoin
BTCUSD,
and ether developers were not centralized enough for those currencies to meet this definition. But this speech is not formal guidance, and Hinman no longer with the SEC.
The debate over whether ether should be considered a security is particularly salient given the SEC’s ongoing court case against Ripple Labs Inc. and two of its executives, issuers of the cryptocurrency XRP
XRPUSD,
Ripple said in response to the SEC suit that “there is no principled distinction” between its “current function and that of [bitcoin or ether].”
Gensler, a Democrat, has refused requests to elaborate as to why the SEC sees XRP as a security, but not bitcoin or ether, and this lack of clarity has drawn the ire of both crypto boosters and the two Republican commissioners on the five-member SEC.
In July, Commissioners Hester Peirce and Elad Roisman issued a public statement protesting their colleagues’ unwillingness to offer more detailed guidance that would enable crypto entrepreneurs to better understand the differences between assets like XRP and bitcoin and ether.
The value of high-profile cryptocurrencies have taken a hit in recent weeks amid concern over rising interest rates. The dollar price of bitcoin has fallen more than 17% over the past month, and ether has tumbled more than 25%, according to data from Kraken.
