Fintech

Gensler: Bitcoin may be a commodity

The SEC has been vague about crypto. But Gensler said bitcoin is a commodity, “maybe.” It’s the clearest glimpse of his views on digital assets yet.

Gary Gensler

“Bitcoin — maybe that’s a commodity token. That has a big market value, but that goes over there,” Gensler said, referring to another regulator, the CFTC.

Photoillustration: Al Drago/Bloomberg via Getty Images; Protocol

SEC Chair Gary Gensler has long argued that many cryptocurrencies are subject to regulation as securities.

But he recently clarified that this view wouldn’t apply to the best-known cryptocurrency, bitcoin.

Gensler told the House Appropriations Committee last week that the SEC has “jurisdiction over probably a vast number” of cryptocurrencies currently in circulation.

“Bitcoin — maybe that’s a commodity token. That has a big market value, but that goes over there,” Gensler said, referring to another regulator, the CFTC.

“I think it’s the clearest statement that I’ve heard yet” from Gensler on bitcoin, Klaros Group Partner Jonah Crane told Protocol.

That’s significant for a regulator who has been criticized for leaving vague which cryptocurrencies would be considered securities and which ones are commodity tokens.

Often, the SEC’s position gets clarified only when officials speak out publicly or when the regulator sues a company.

Gensler’s statement tracks with his predecessor Jay Clayton’s view that bitcoin is not a security, but other digital assets, including cryptocurrencies, that promise a return are.

Gensler also said, “The rules are actually quite clear that if you're raising money from the public and the public anticipates a profit based on [the] effort of that sponsor — that, entrepreneurs, that's a security.”

A commodity would be a product like “corn or wheat or gold or oil” which “doesn't have an issuer, doesn't have one party sitting there behind it and the public's not anticipating [returns] based on the efforts of that one party,” Gensler said.

That’s clearly not the case with another cryptocurrency, XRP, the SEC has argued. The agency sued Ripple for failing to register roughly $1.4 billion worth of XRP as securities.

The lawsuit, which was filed before Clayton stepped down in late 2020, argued that Ripple “made it part of its ‘strategy’ to sell XRP to as many speculative investors as possible,” an allegation Ripple rejects.

But the Ripple case threw a curveball at the SEC after it turned the spotlight on another official’s public comments. In 2018, former director William Hinman gave a speech in which he said that ether is not a security. His statement sparked a rally in ether.

Hinman’s speech became controversial after a nonprofit whistleblower group called Empower Oversight recently published SEC emails that suggested that Hinman was working for a law firm that was part of an alliance dedicated to promoting the commercial use of the Ethereum blockchain on which ether trades. Ethereum competes with Ripple’s XRP-based payments system, so Hinman’s work raised questions about his role in voting to sue Ripple.

Ripple has been pressing the SEC to release internal emails and documents related to Hinman’s speech that could shed light on how crypto has been discussed within the regulatory agency. “I think that's really relevant about how he came about giving that speech,” Ripple General Counsel Stuart Alderoty said in an interview with Protocol last month.

If the SEC loses the legal battle, which is expected to drag on through next year, it could force the regulator to more clearly define its policies in a way that’s boxed in by a court decision. “It’s a high-risk case for them,” Crane said.

But opting to come out with a definitive list of which cryptocurrencies are securities and which ones are commodity tokens can also put the SEC in a “risky position,” he said.

“If the SEC were to declare a bunch of tokens to be securities, it would face legal challenges,” Crane said. “And right now, it's probably waiting to see how the Ripple/XRP case plays out.”

Congress is expected to play a critical role in coming up with new laws for crypto. Marc Fagel, a former SEC regional director for San Francisco who’s now a lecturer at Stanford Law, said the agency may be trying to keep its options open in how to deal with a fast-changing market.

“I suspect they find the broad, existing parameters of the securities laws give them more flexibility than trying to nail down specific definitions in a relatively new, rapidly evolving industry,” he said.

Those laws could change, too. A new crypto bill from Sens. Kirsten Gillibrand and Cynthia Lummis, promised since March, could come as soon as this week, according to Bloomberg. The bill would split oversight of crypto between the SEC and CFTC along the lines of the SEC’s existing responsibilities for securities and the CFTC’s for commodities.

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