SEC Chairman Gensler faces questioning in Congress over crypto oversight

At a highly anticipated congressional hearing today, Securities and Exchange Commission (SEC) Chairman Gary Gensler and his colleagues came under intense scrutiny over their handling of the agency's regulation of digital assets.

For the first time since 2019, all five commissioners, including Caroline Crenshaw, Hester Peirce, Jaime Lizárraga and Mark Uyeda, testified together before the House Financial Services Committee. The hearing exposed growing tensions surrounding the SEC's oversight of cryptocurrencies, which critics say has become too broad and legally ambiguous.

Committee Chairman Patrick McHenry, a North Carolina Republican, immediately set the tone, accusing Gensler of seeking to over-regulate. “Chairman Gensler's legacy will be marked by his turning the once proud institution of the SEC into a rogue agency,” McHenry said, accusing the SEC of enforcing regulations “often without sufficient justification, economic analysis or public participation.” The SEC's hardline approach targeted a wide range of U.S. crypto companies – from exchanges like Coinbase to decentralized finance (DeFi) platforms like Uniswap.
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and NFT marketplaces like OpenSea.

SEC Commissioner Hester Peirce, often called “Crypto Mom” ​​for her industry-friendly stance, criticized her agency's lack of clarity in defining what constitutes a security. “We took a legally imprecise view to disguise the lack of regulatory clarity,” Peirce explained. “By using imprecise language, we were able to suggest that the token itself is a security, apart from the investment contract, which has implications for secondary sales and who can list it. We failed in our duty as a regulator.”

Gensler has repeatedly pointed to the Howey test — a legal framework created by the U.S. Supreme Court that determines whether a transaction is an investment contract and therefore should be subject to U.S. securities laws — as the backbone of his regulatory approach. However, Rep. Ritchie Torres (D-NY) took issue with Gensler's interpretation of the test as it relates to non-fungible tokens (NFTs). Torres called Gensler's interpretation “idiosyncratic,” noting that the SEC's logic could turn “pretty much any collectible or any consumer good or any work of art or any piece of music” into a security. “It's so open-ended that it blurs the line between collectible and security, between art and security,” Torres noted.

Opposition to Gensler's approach is not limited to the crypto industry – lawmakers from both camps have also voiced their displeasure. One of the most contentious issues is Staff Accounting Bulletin (SAB) 121, which requires managers of digital assets to treat them as liabilities on their balance sheets. This rule has drawn rare opposition from both parties. Thirty-three Democrats have joined Republicans in voting to repeal the policy, which critics say imposes onerous capital requirements on banks seeking to expand their crypto businesses.

Ranking member Maxine Waters (D-CA) struck a more moderate tone, stressing the need for legislative action beyond the SEC's purview. “I want to see us get a big deal done on stablecoins and other long-overdue bills before the end of this year,” she said, suggesting that Congress may finally make the move many in the industry have long been waiting for.

Amid regulatory chaos, the role of cryptocurrencies in American politics has increased dramatically. Both presidential candidates have acknowledged the importance of digital assets to the future of the U.S. economy, a stark contrast to the industry's once fringe status. This newfound political influence is exemplified by the rise of Fairshake, a Super PAC funded by leading cryptocurrency companies including Ripple, Andreessen Horowitz, Coinbase, and Jump Crypto. In the 2024 election cycle, it endorsed the winning candidate in 33 of the 35 House and Senate primaries it participated in, with notable victories in states like Utah, California, and New York, according to CNBC.