Gary Gensler
Photo illustration: Al Drago/Bloomberg via Getty Images; Protocol

Here’s what Gary Gensler thinks about bitcoin

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Tuesday: Gensler on bitcoin, Cawthorn’s crypto and PayPal’s layoffs.

Off the chain

Who said crypto’s worthless? At Davos, Tether was handing out free pizza slices to celebrate Bitcoin Pizza Day, the time when a poor soul exchanged 10,000 bitcoin, then worth $41 and now worth roughly $300 million, for two pies. The gathering of central bankers, the traddiest of the TradFi crowd, jostled elbows with HODLers. Even as Christine Lagarde of the ECB argued that crypto was “worth nothing,” Circle CEO Jeremy Allaire and FTC CEO Sam Bankman-Fried showed up to make the case for digital assets. One lesson: Don’t pay for pizza.

— Owen Thomas (email | twitter)

Gensler’s big ‘maybe’

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, but “maybe” not bitcoin, which as a “commodity token” would be better overseen by the CFTC.

For Gensler, those are strong words. He’s been criticized for leaving vague which cryptocurrencies would be considered securities and which ones are commodity tokens.

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

Crypto insiders complain that they find out the SEC’s views on their products through legal action. They call it “regulation through enforcement.”

  • Gensler argued at the House hearing that it’s not that complicated, really: “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.

The SEC has made a case that XRP is the former, not the latter. 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 turned the spotlight on another SEC 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.
  • 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.

The SEC is now in a high-risk position. The Ripple case could give it a victory or box it in.

  • 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. Coming out with a definitive list of which cryptocurrencies are securities and which ones are commodity tokens could also put the SEC in a “risky position,” Klaros’ Crane said.
  • 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. Using “the broad, existing parameters of the securities laws give them more flexibility,” 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.

— Benjamin Pimentel (email | twitter)

A version of this story first appeared on Read it here.


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On the money

On Protocol: GameStop is going full Web3 with the launch of a self-custodial crypto wallet. The games retailer is cautioning users to use the wallet, still in beta, “responsibly.”

A Fed report showed two major types of crypto users. The study showed that generally, people in higher income brackets use crypto as an investment, while people in lower income brackets use crypto in transactions.

Also on Protocol: In a pre-recorded video call, Klarna CEO Sebastian Siemiatkowski told employees that it’s laying off 10% of its workforce, a move that has come amid a sharp decline in the market value of “buy now, pay later” companies.

Madison Cawthorn is being investigated for insider trading in connection with a crypto promotion. The U.S. House Ethics Committee has opened an investigation into the Republican lawmaker’s promotion of the Let’s Go Brandon coin, on allegations that Cawthorn misrepresented how much he knew about the project.

Top crypto leaders want to stop the OECD from extending tax rules further. While the Organization for Economic Co-operation and Development wants to extend traditional international banking tax rules to DeFi and NFTs to stop secret foreign bitcoin holdings, crypto leaders are calling the move “overly broad.”

PayPal laid off 83 workers based in San Jose. The layoffs reportedly mostly affected engineers, managers and directors at its headquarters, with the company hinting at short-term cost reductions in its first-quarter earnings call with analysts.


PayPal plans to dive deeper into the crypto world and expand its offerings in the future. At Davos, executive Richard Nashsaid that the payments giant is “looking to work with others to embrace everything we can,” ranging from “PayPal digital wallets, private digital currencies or CBDCs in the future.”

When asked about what would happen if Binance were to ever go bankrupt, CEO Changpeng Zhao said in an AMA Reddit thread that “funds would be refunded to users first, BEFORE any shareholders,” and if an investor has a problem with that, Zhao says, “Bye.”

Even with a general economic downturn and fears of a recession brewing, JPMorgan Chase Chief Financial Officer Jeremy Barnum thinks that U.S. consumers don’t need to worry yet. “Big picture, the near-term credit outlook, especially for the U.S. consumer, remains strong,” Barnum said at the bank’s investor day.

Deal flow

Secretive crypto startup TipTop raised $23 million in a series A funding round led by Andreessen Horowitz. Postmates founder Bastian Lehmann first teased the startup a few weeks ago, and is keeping his descriptions of the “consumer finance solutions” company vague.

San Francisco-based credit building service Altro raised $18 million in series A funding. Pendulum led the round, while Jay-Z’s Marcy Ventures and Black Capital Fund also participated.

Banking-as-a-service startup Unit reached a $1.2 billion valuation. A $100 million series C round led by Insight Partners boosted it to almost five times its previous $255 million valuation.

Xendit, an Indonesian payments company, raised $300 million in a series D round. The startup closed a $150 million series C round about nine months ago. The company’s new valuation was not disclosed.

Keep Financial, which offers vesting cash compensation plans for employees, announced a $9 million seed round led by a16z. The company was created by Kabbage founders Rob Frohwein and Kathryn Petralia.

Crypto savings app Pebble announced a $6.2 million seed round. Y Combinator joined the round, in addition to Lightshed Ventures, Cadenza Capital and Orange DAO.


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