As crypto continues to crash regulators around the world are taking advantage of the chaos to begin clamping down on the industry while investors have their backs turned from being burned in the United States the sec has begun a full-on assault on cryptocurrency and a recent hearing with the sec’s head of enforcement suggests that the orders to kill crypto are coming from higher up
If you’re unfamiliar with the sec here’s what you need to know the securities and exchange commission or sec is one of the most powerful financial regulators in the united states it oversees the issuance and trading of securities which includes assets like stocks and bonds hence the name the sec is currently headed by Gary Gensler who spent most of his earlier career at Goldman Sachs where he oversaw multiple billion-dollar deals.
Gary went on to become the chairman of the commodities futures trading commission or CFTC another powerful financial regulator in the United States before joining the sec Gary was a professor at the Massachusetts institute of technology MIT where he taught courses in financial technology including cryptocurrency
when Gary became chairman of the sec last spring many believed that his previous crypto experience would translate into pro-crypto regulations from the agency but so far it’s been the opposite over the last year or so the sec has been cracking down on crypto projects and is reportedly beginning to crack down on cryptocurrency exchanges as well this might have something to do with the fact that Gary seems to believe that every cryptocurrency except BTC is security including stable coins not surprisingly this has resulted in lots of pushback from the crypto industry and pro-crypto politicians who have pointed out on many occasions that Gary’s beliefs and the sec’s actions are inconsistent with the sec’s criteria about which assets count as securities
the sec uses something called the Howie test to determine an asset’s security status and the TLDR there is that there must be an identifiable third party driving the expectation of profit from investing in an asset to make it secure while the expectations of profit for some cryptocurrencies can be traced back to certain individuals and institutions the origin of these expectations is much harder to identify for cryptocurrencies such as Ethereum’s eth which is quote sufficiently decentralized
according to a former sec official, it seems that the sec’s criteria haven’t stopped Gary and the gang from picking and choosing which crypto projects and crypto companies to clamp down on the scariest part is that anti-crypto politicians have been applauding the sec’s regulation by enforcement and encouraging it to do more that’s why the hearing I’ll be summarizing today is so significant it took place on Tuesday the 19th of July and it featured only one witness Gerber Grewal the sec’s director of enforcement who’s only held the position for about a year and it looks like it’s been a busy year if you catch my drift now the hearing itself was organized by the united states house committee on financial services specifically the subcommittee on investor protection entrepreneurship and capital markets and it’s extremely important to point out that this subcommittee has direct oversight of the sec
the hearing began as most of these hearings do and that’s with opening statements from politicians from both sides of the aisle followed by an opening statement from the witness which is again the sec’s enforcement director Gerbia Grewell the first politician to go was sub-committee chair Brad Sherman and if the name sounds familiar that’s because brad is one of the most anti-crypto politicians in the united states brad began by highlighting the fact that the subcommittee has direct oversight of the sec which in turn oversees assets that are worth more than 100 trillion dollars let that sink in brad also revealed that the sec has an annual budget of 2 billion and 4500 employees a quarter of whom are part of the regulators enforcement division you know I’m starting to understand why these regulators are so easy to influence 2 billion to oversee 100 trillion if the sec was a proof of state crypto it would have been compromised 100 times over more about proof of work versus proof of stake in the description
brad went on to explain that the number of enforcement actions the sec took in 2021 increased by seven percent compared to the previous year and that ideally the sec would discourage rule breaking before it happens regarding crypto currencies brad talked about how the sec has gone after no fewer than 80 crypto projects and companies since it established its digital assets arm in 2017 and that these enforcement actions resulted in two billion dollars in fines basically enough to cover one year of the regulator’s expenses brad ended his opening statement by conceding that there are some serious concerns around crypto definitions particularly in the context of criteria such as the howey test and said he’s surprised that the sec hasn’t spent more time going after crypto exchanges this comment made the crypto headlines the next politician to give their opening statement was bill husenga who serves as the ranking member to the subcommittee that’s a fancy term for second in command from the other side of the aisle bill began by highlighting the fact that it’s been years since the subcommittee has had the chance to properly interrogate sec officials and expressed anger that Gary Gensler wasn’t present to answer for his actions though to be fair it’s not entirely clear whether Gary was invited in the first place
bill continued being blatantly pro-crypto during his opening statement mentioning everything from the fact that the sec was failing to facilitate capital formation for Americans by going after crypto and that it’s actively engaging in enforcement without providing much-needed regulatory clarity this was in stark contrast to the next politician Maxine waters the chairwoman of the house committee on financial services the committee to which this subcommittee belongs
Maxine’s opening statement was surprisingly short and to the point, the life savings of Americans were lost during the recent crypto crash it’s great to see the sec cracking down keep doing what you’re doing that was literally it and then it was time for the man of the hour to make his opening statement Gerbia began by bragging about how the sec’s enforcement actions have been increasing over the years and said that crypto companies must work proactively to comply and the penalties will arise if they don’t.
Gerbia went on to admit that investigating crypto projects and companies is becoming more difficult and therefore the sec is asking once again for politicians to allocate even more capital to it so that it can crack down on the crypto industry even more with opening statements out of the way it was time for the politicians present to start asking questions and the first to go was none other than subcommittee chairman brad Sherman brad began by not so subtly responding to bill’s frustration about sec officials not showing up to hearings noting that Gary Gensler will be appearing before the committee later this year and you can rest assured I’ll be summarizing that hearing when it comes along brad went on to say something surprising and that’s that the sec must provide a clear definition of what a security is in the context of cryptocurrency this is surprising because brad is anti-crypto yet he knows as well as anyone else that regulatory clarity will result in more investment in cryptocurrency unfortunately it only took a few seconds for brad to remember he’s anti-crypto and this is where he said that the sec needs to go after exchanges like coinbase simply because they listed xrp
