The Opposite of Regulatory Clarity
SEC Chairman Gary Gensler decides to hide the ball.
At Tuesday’s hearing before the House Financial Services Committee, SEC Chairman Gary Gensler repeatedly refused to answer one simple question: Do you believe the digital asset Ethereum is a security?
The question was put to him repeatedly by Congressman Patrick McHenry (R. NC), who is the Chairman of the House Financial Services Committee--which is the committee charged with oversight of the SEC. The question has profound implications. If Ethereum qualifies as a security, it would be illegal to buy or sell Ethereum in the U.S. because it has not been registered with the SEC.
The Chairman of the SEC is supposed to be the “top cop” for the U.S. securities markets.
Can you imagine any other law enforcement officer flatly refusing to tell those within his jurisdiction what is illegal and what is not?
The idea that citizens must be informed in advance of what is prohibited by law before they can be charged with violating the law is a fundamental part of our concept of Due Process. This principle traces its roots back at least 800 years to the Magna Carta.
But in Gary Gensler’s world, he will let you know what law you broke when he sues you for breaking that law.
And there is nothing you can do about it.
The Chairman’s bizarre “hide the ball” strategy has serious ramifications--
Retail holders of the Ethereum asset can not be sure whether they are in possession of a worthless unregistered security.
U.S. crypto exchanges can not be sure whether they will be charged by the SEC for listing Ethereum for trading.
Development teams that have worked for years to build innovative projects on the Ethereum blockchain can not be sure whether they might be shut down because Gensler suddenly decides that transactions in Ethereum are all illegal.
Gensler’s refusal to provide regulatory clarity on Ethereum, and a host of other digital asset issues, has forfeit a significant reservoir of credibility for the institution of the SEC—a once proud agency, respected throughout the world for its sound judgment and integrity. Once lost, such credibility is not easily recovered.
Tragically, some of our most brilliant young minds, engineers and entrepreneurs are, for the first time in their lives, forced to contemplate the heartbreaking decision to leave the United States in order to pursue their dreams in another country where innovation and opportunity are still welcome.
Gensler’s intransigent position stands in stark contrast to that of the New York Department of Financial Services (NYDFS). The NYDFS has a “GreenList” of approved crypto assets that may be listed for trading on any crypto exchange that has obtained a BitLicense from the NYDFS. That GreenList of approved crypto assets, of course, includes Ethereum.
Not only that, Adrienne Harris, the Superintendent of the NYDFS, put out a press release last September proactively addressing the regulatory impact of the Ethereum transition from Proof-of-Work to Proof-of-Stake. It informed all New York crypto market participants that:
“Following Ethereum’s upcoming protocol change to a “proof of stake” consensus mechanism, the NYDFS will continue to recognize Ether (ETH) under its Greenlisted Coins/Tokens.”
That is what regulatory clarity looks like.
It’s really not that hard to do.