Testifying before the House Financial Services Committee earlier this week, Securities and Exchange Commission Chair Gary Gensler remarked that, “I’ve been around finance for 40 years… I’ve never seen a field that is so noncompliant with laws written by Congress and confirmed over and over again by the courts” than that of trading platforms specializing in the buying and selling of cryptocurrency. Gensler’s comments largely reflect the SEC Chair’s two-year tenure that has seen the increased enforcement of transparency and compliance over the growing crypto-trading industry. Just last month, the SEC notified Coinbase, the US’s largest crypto exchange, that it was preparing to sue the platform for violating investor-protection laws, particularly allowing investors to trade unregistered securities.
Meanwhile, just a day before Gensler’s testimony the SEC charged smaller crypto-trading platform Bittrex with “operating an unregistered national securities exchange, broker and clearing agency” according to Reuters’ Hannah Lang. In light of the SEC’s continued crackdowns, Republicans on the Financial Services Committee mounted an attack in the midst of Gensler’s testimony. House Majority Whip Tom Emmer (R-MN) defended crypto-trading platforms, arguing, “You say the crypto industry is rife with noncompliance, yet existing SEC rules make no sense for blockchain-based companies, and following them would actually kill these businesses.” Emmer also deemed Gensler an “incompetent cop on the beat” for his failure to prevent the collapse of notable cryptocurrency exchange and crypto hedge fund FTX last November. FTX’s collapse, however, if anything illustrates the need for Gensler’s campaign in regulating crypto-trading firms. As steep declines in many digital currencies ushered in a wave of bankruptcies in trading platforms, FTX simply served to be the next casualty in line as customers quickly withdrew funding from the once massive firm. Such a collapse has nonetheless sparked bipartisan backlash against the SEC Chair, with Congressman Ritchie Torres penning in a letter to the Government Accountability Office, “If the SEC has the authority Mr. Gensler claims, why did he fail to uncover the largest crypto Ponzi scheme in US history?”
Although Gensler has drawn congressional criticism in the wake of FTX’s collapse, other members of congress have at least grown to recognize the necessity of further crypto regulation. Congressman Stephen Lynch (D-MA), largely responding to Rep. Emmer’s defense contends, “There is a fair amount of guidance out there and clarity; it’s just not the clarity that the crypto industry wants.” What’s worthy of mentioning is that Rep. Lynch is a member of the Congressional Blockchain Congress, and has previously been seen as a defender of the industry. As pressure builds on Gensler from both sides of the aisle competing for different outcomes, the SEC Chair as of right now seems as committed as he was upon his nomination in 2021 to wrangling in the trade of unregistered securities in the crypto industry. If Gensler’s tenure can withstand the pressure and possibly prevent another FTX, however, remains to be seen.