SEC Chairman Gary Gensler dodges on whether ethereum is a security or commodity
Zachary Halaschak
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Securities and Exchange Commission Chairman Gary Gensler struggled in congressional testimony on Tuesday to say whether the popular cryptocurrency ethereum is a security or a commodity.
The tense exchange came as Gensler, who was appointed to lead the SEC by President Joe Biden, testified before the House Financial Services Committee on Tuesday. Committee Chairman Patrick McHenry (R-NC) said there is a lack of clarity on how ethereum should be regulated, but Gensler repeatedly demurred.
Bitcoin, the largest cryptocurrency, is widely viewed as a commodity, but questions about ethereum, the world’s second-largest cryptocurrency, have arisen after ethereum last year switched to a proof-of-stake blockchain network, in which coins can be staked in exchange for rewards in a manner somewhat similar to interest paid on bonds.
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“I’m asking you to sit in your chair now to make an assessment under the laws as [they] exist — is ether a commodity or a security?” McHenry asked Gensler.
“Without speaking to any one token, it’s a matter of facts—” said Gensler before being cut off by the North Carolina Republican.
McHenry pointed out that despite Gensler’s refusal to speak about individual cryptocurrencies, the SEC chairman has already spoken about bitcoin. He asked Gensler to address ethereum now as well.
After a back-and-forth with McHenry cutting off Gensler and demanding a straightforward answer, Gensler said: “My view is that if there is a group of individuals in the middle that the public is anticipating a profit based on those efforts.”
McHenry asked Gensler whether he thinks it serves the market for an asset to be viewed by the commodities regulator as a commodity and the securities regulator as a security. He asked whether the SEC chairman thinks that dissonance provides safety and soundness for product and consumer protection.
“I think ‘no’ should be a very simple answer for you here,” the congressman said. “That uncertainty is bad, is it not?”
“I’m answering it in the generic because you would not want me to speak about any one set of facts and circumstance,” Gensler said. He also noted that his predecessor and the agency itself have already addressed bitcoin.
McHenry once again asked whether Gensler would be willing to do the same about ethereum, without Gensler giving a simple response.
If Congress and the courts determine that ethereum is actually a security rather than a commodity, crypto exchanges that deal in ether would have to end up registering as securities broker-dealers with the SEC.
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Bitcoin, ethereum, and other cryptocurrencies have seen some growth since the start of the new year, with investors hoping to leave a dismal 2022, which was marked by big price declines and the implosion of crypto giant FTX, behind them.
On New Year’s Day, bitcoin was trading at about $16,500 and was generally below $17,000 for the stretch of time since FTX’s dramatic implosion in mid-November. But as of Tuesday, the flagship digital asset was trading at about $30,000, a gain of more than 80%. Ethereum has risen by about 75% during that same period.