SEC's Gensler pushes back on industry's call to recuse from crypto actions

Quick Take

  • SEC Chair Gary Gensler said he was “well aware” of “ethical responsibilities,” when asked Wednesday for his response about the crypto industry calling him to recuse himself from making certain crypto-related decisions. 
  • Gensler also spoke about firms’ listing of Coinbase as a surveillance sharing partner in recent spot bitcoin ETF filings. 

Securities and Exchange Commission Chair Gary Gensler pushed back on calls from the crypto industry to recuse himself from making certain crypto-related decisions, saying he is “fully compliant” with the law. 

“I take an oath, along with my fellow commissioners, to enforce the law that Congress passed and how the courts interpret it,” Gensler said during a media availability following a commission meeting related to rulemaking on money market funds and broker-dealers on Wednesday. “It really comes down to protecting the investing public and looking through the facts and the circumstances of each of the individual tokens and the platforms themselves.” 

Gensler added that he is “well aware of my ethical responsibilities.”

The Blockchain Association published a paper last month, written by the association's chief policy officer, Jake Chervinsky, arguing for Gensler to recuse himself from certain crypto enforcement decisions. The association claimed in the paper that the crypto industry is not able to get a “fair assessment” from the SEC chair because of Gensler's statement in the past that "everything other than bitcoin" could be considered a security under current financial law.

“His steadfast view that all digital assets except bitcoin are securities means that he cannot approach enforcement decisions with a fair and impartial mind,” Chervinsky wrote. 

Earlier on Wednesday the Blockchain Association also pressed the SEC's inspector general to investigate the recent granting of a special purpose broker-dealer license to Prometheum, a company whose co-CEO maintains that crypto should fit within current securities laws, in contradiction to much of the industry.

Thoughts on Coinbase in the center of a spot bitcoin ETF

A number of firms vying for the first spot bitcoin exchange-traded fund in the U.S., including BlackRock and Fidelity, recently listed Coinbase as a market surveillance sharing partner. This comes despite the SEC charging Coinbase in early June for operating as an unregistered exchange, broker and clearing agency. 

Gensler declined to go into specific ETF filing, but repeated a broader concern of U.S. financial regulators that crypto exchanges tend to operate “a bunch of conflicted services,” a concern that the agency highlighted as part of its rationale for an enforcement action against Coinbase. 

“What that means is they could be trading directly against you and market making against you which you would not see, or hope to see on the New York Stock Exchange or NASDAQ,” Gensler said. 

Gensler also warned that crypto platforms have “limited risk monitoring” for wash trading, a form of market manipulation. The SEC has rejected tens of spot bitcoin ETF applications, dating back to before Gensler's tenure, due to concerns over lack of transparency and potential market manipulation in bitcoin trading.

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