SEC’s Gensler classifies cryptocurrencies as securities despite industry opposition

Gensler is doubling down on cryptocurrency regulation amid industry backlash and legal setbacks.

U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler remains adamant that most cryptocurrencies fall under the agency’s securities regulation, despite continued criticism from the crypto industry.

In written testimony to the Senate Banking Committee on September 12, Gensler reiterated the SEC’s strict position that cryptocurrency trading platforms and intermediaries must register with the agency as exchanges, broker-dealers, and clearing houses.

Gensler said,

“There is nothing in the cryptoasset securities market to suggest that investors and issuers do not deserve the protection of our securities laws,”

The SEC chairman believes that because securities laws from the 1930s defined securities broadly, including “investment contracts,” most cryptocurrencies and crypto tokens meet the definition of securities regulated by the SEC.

Gensler defended the SEC’s recent series of enforcement actions against major cryptocurrency companies.

"Given widespread noncompliance with securities laws in the industry, it's not surprising that we are seeing many problems," he said.

However, the cryptocurrency industry believes that sweeping regulations fail to take into account the unique nature of digital assets.

Others accuse the SEC of overreaching by trying to extend decades-old securities laws to emerging cryptocurrency financial models such as decentralized autonomous organizations (DAOs) and decentralized finance (DeFi) protocols.

However, Gensler’s strict regulatory approach faces ongoing legal challenges that could undermine the SEC’s ability to hold cryptocurrency companies to compliance. A recent court ruling in the Ripple case provided a partial victory for the company, ruling that some XRP token sales did not constitute unregistered securities.

Specifically, the judge determined that retail and free distribution of XRP did not meet the legal test of a security. While declaring Ripple’s institutional sale a securities offering, the nuanced ruling suggests that the crypto asset may not fully comply with 1930s-era regulations. Some industry experts believe this shows flaws in the SEC’s approach to crypto-finance concepts. Nonetheless, Gensler expressed disappointment that the SEC has since challenged the judge’s conclusion regarding retail XRP sales.