SEC Chairman: The Vast Majority of Cryptocurrencies Are Actually Securities

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SEC Chairman Gary Gensler, who has faced significant setbacks in two major cryptocurrency-related lawsuits – Ripple and Grayscale – over the past two months, remains firm in his belief that the SEC, under his leadership, should be the regulatory authority for the cryptocurrency industry. He plans to reiterate his consistent stance during a congressional hearing scheduled for September 12th.

According to an early report obtained by Cointelegraph, Gary Gensler's prepared written testimony for the upcoming Senate Banking Committee hearing reiterates, "The vast majority of crypto assets are, in fact, securities and should be regulated by the SEC." In his testimony, he wrote, "Given the widespread non-compliance with the securities laws in the crypto field, it is no surprise that we see a lot of problems in these markets. We've seen this story before; it harkens back to the days before the federal securities laws were enacted in the 1930s. There is nothing in the crypto asset securities markets to suggest that investors and issuers don't deserve the protections of the federal securities laws."

SEC Chairman: Most Cryptocurrencies Likely Pass the Howey Test

Gensler, who considers himself the master of cryptocurrency regulation, will once again convey his consistent position to Congress, believing that there is no need to amend U.S. federal securities laws to accommodate cryptocurrencies. He asserts that "virtually all crypto assets are securities under the Howey Test," a qualitative standard for determining whether a particular asset or transaction constitutes a securities offering. "Congress has laid out a long list of over 30 items in the definition of a security, including the term 'investment contract.' As I have stated before, without prejudging any token, most of these tokens probably meet the definition of an investment contract. Given that most crypto exchanges are subject to the securities laws, most crypto intermediaries must also adhere to securities laws."

Notably, in July, the SEC faced its first major defeat in the cryptocurrency space when Judge Analisa Torres made a partial ruling favorable to Ripple. She determined that the sale of XRP by exchanges to retail investors did not constitute an investment contract and was not a security, which was widely seen as a victory for the cryptocurrency industry.

Despite SEC lawyers previously arguing that the ruling regarding the sale of XRP to retail investors by Ripple was in error, Judge Torres's decision "added unwarranted subjective standards" to the Howey Test. The SEC formally requested "interlocutory appeal" of the Ripple case in August, and Judge Torres approved the SEC's request for an interlocutory appeal on August 18th.

Ripple filed a motion earlier this month asking the court to dismiss the SEC's interlocutory appeal, arguing that there are no special circumstances requiring an interlocutory appeal and criticizing the SEC's decision to file an interlocutory appeal solely based on its dissatisfaction with the judge's determination that the sale of XRP to retail investors did not meet the definition of a security.

Currently, the SEC has not officially won the motion for an interlocutory appeal. Legal experts have expressed skepticism, stating that "interlocutory appeals are typically allowed only in exceptional circumstances." Furthermore, the judge plans to conduct a jury trial for the Ripple case in Q2 2024.