SEC Chair Under Fire by Congress: “Is Ether a Commodity or a Security?”

Securities and Exchange Commission (SEC) Chairman Gary Gensler testified before the House Financial Services Committee on Tuesday regarding the agency’s enforcement actions against the crypto industry over the past few months. 

The chair was pressed for answers on how exactly he differentiates between crypto securities and crypto commodities, and recent difficulties for crypto firms to access financial services. 

Where is the Clarity?

In his opening statement, committee chair Patrick McHenry noted that Gensler and this year’s exchange commission had brought “nearly 50 separate enforcement actions against digital asset firms.” The agency plans to expand that enforcement with a requested $78 million in funding. 

“At the same time, you have refused to provide clarity on whether digital assets offered as part of an investment contract are subject to securities laws, and more importantly, how these firms should comply with those laws,” he continued. 

In previous statements and interviews, Gensler has claimed that the vast majority of crypto assets are securities, only explicitly naming Bitcoin as a commodity. Beyond the largest crypto, he’s refused to name names – even avoiding giving a direct answer about Ethereum’s classification. 

The same happened during Tuesday’s hearing. When asked by McHenry whether Ether was a commodity or a security, Gensler merely stated that “the clarity is there, the law is clear and explicit.”

Gensler frequently cites the Howey Test when asked to determine whether a digital asset is a security or not. Under the test, a financial asset issued to raise money with an expectation of profit based on the efforts of others qualifies as an “investment contract.”

Regulation by Enforcement

On enforcement actions, Minnesota Rep Tom Emmer asked a series of rapid-fire questions related to the increasingly hostile banking and regulatory environment crypto firms are facing in the United States. As Gensler hesitated to give short and direct answers, Emmer asserted that the SEC helped play a role in making it more difficult for crypto firms to operate in the country. 

“Your regulatory style lacks flexibility and nuance, and as a result, you’ve been an incompetent cop on the beat,” said Emmer, “doing nothing to protect everyday Americans, and pushing American firms into the hands of the CCP.”

Emmer also criticized Gensler for allowing the multi-billion dollar Terra and FTX collapse to occur on his watch. The congressman suggested last year that FTX was given “special treatment” by the SEC that other firms weren’t privy to.