Gensler takes heat from lawmakers over his approach to regulating crypto

Securities and Exchange Commission Chair Gary Gensler took some heat from lawmakers over the agency’s approach to regulating cryptocurrency. 

Gensler fielded questions on Wednesday during a House committee hearing about whether the agency would greenlight spot bitcoin exchange-traded funds, whether bitcoin is a security and even whether a Pokemon card could be considered a security.

House Financial Services Committee Chair Patrick McHenry, R-N.C. began by asking Gensler about whether or not bitcoin is a security. Gensler has said in the past that "everything other than bitcoin” could be considered a security. 

The question was met with a bit of back and forth. 

“I’m asking you to answer my question now,” McHenry said. “This is not supposed to be hard." 

Gensler said bitcoin is not a security, and that it does not meet the so-called Howey Test that was born from a 1946 U.S. Supreme Court case and is now used to help determine whether transactions are investment contracts and thus subject to securities laws. 

Subpoena threat

McHenry also appeared to threaten the SEC chair with a subpoena at the beginning of Wednesday’s hearing, accusing Gensler of not being transparent to Congress regarding his interactions with bankrupt crypto exchange FTX and its former CEO Sam Bankman-Fried.

“Either we find a path forward where the SEC recognizes Congress as a co-equal branch of government and is responsive to our oversight duties, or my only option is to issue a subpoena,” McHenry said. 

Rep Maxine Waters, D-Calif., backed Gensler up in her opening remarks, while highlighting concerns over what impact a looming government shutdown could have on the agency. 

“The SEC is very much implementing the priorities that I and my Democratic colleagues championed when we were in charge, and is shaping up to be the most pro-worker, pro-investor, pro-small business SEC since FDR created the agency,” Waters said.

'Regulation by harassment'

Rep. Tom Emmer, R-Minn., accused Gensler in a heated exchange of being an “impartial regulator” and taking a “regulation by harassment approach” toward digital assets

“Instead it’s clear that you are working to consolidate your own power even though it means crushing opportunities for everyday Americans and frankly, the financial future of this country," Emmer said. 

Gensler has asserted that most cryptocurrencies and crypto firms are subject to federal securities laws. He's also said the industry is generally non-compliant and rife with conflicts.

Pokemon cards

Rep. Ritchie Torres, D-N.Y., asked Gensler on Wednesday if buying a Pokemon card could be a security transaction, and therefore be subject to securities laws. Gensler confirmed it would not be. 

“If I were to purchase a tokenized Pokemon card on a digital exchange via blockchain — is that a security transaction?” Torres then asked. 

“I’d have to know more,” Gensler said. 

Bitcoin ETFs 

Gensler was also grilled on why the SEC has not yet allowed a spot bitcoin ETF to trade. Nickel along with other lawmakers sent a letter to the chair, citing a recent Grayscale decision as a reason to greenlight those products. 

“Now that the SEC has the court’s decision in hand, rejecting your rationale for denial, does the SEC plan to approve the current pending spot bitcoin ETF applications?” Nickel asked

Gensler said the agency was “still taking this under advisement.”