The Chairman of the US Securities and Exchange Commission, Gary Gensler, was taken to task during a House Financial Services Committee hearing on Sept. 27, with congressmen accusing the Chairman of purposely thwarting crypto, and demonstrating that he is not fit for purpose.
On the day, Chairman Gensler told the Committee that he enjoyed testifying before the committee, yet the list of brutal criticisms during the four-hour hearing was both extensive and cautionary, suggesting that an unceremonious end to his tenure is on the horizon.
Congressman accuses Gensler of improper regulation
In one heated exchange at the recent hearing, US Congressman Tom Emmer accused Gensler of improperly regulating crypto to benefit large banking institutions, some of which were bailed out of a liquidity crisis in Q1 2023 following an asset-liabilities mismatch.
In the testimony, Tom Emmer said Gensler’s goal is to categorise the vast majority of crypto assets as securities with the sole purpose of protecting incumbent banks from emerging competition in financial markets.
Can you ensure that your style of regulation by harassment towards digital asset innovation is to the benefit of every American and not driven by your desires to defend industry incumbents?
Gensler noted that crypto is “ripe with fraud, manipulation, fraudsters and scammers” before the Congressman reclaimed his time, and proceeded to highlight how the Chairman is working to consolidate his position at the expense America’s financial future.
Emmer then noted that he’s not alone in his criticism of Gensler. In fact, the SEC Chairman is beset on all sides, with US Federal courts stating that Gensler’s legal authority to squash competition in financial markets is questionable at best.
Gensler threatened with Subpoena
Us Congressman Patrick McHenry raised the stakes for the SEC Chairman too, threatening him with a first-ever SEC subpoena. The Congressman called out Gary Gensler’s refusal to be transparent with Congress regarding his interactions with FTX and Sam Bankman-Fried, noting a “lack of responsiveness”, which is “unacceptable” amid Committee oversight.
.@PatrickMcHenry to @GaryGensler: You are not above the law pic.twitter.com/ml4Btxenvy
— Government Tracker (@_GovtTracker) September 27, 2023
For well over a year, the cryptofinance space has been subjected to a hostile ‘regulation by enforcement‘ approach by a regulatory body which oversaw one of the largest financial crimes in US history take place right under its nose.
You refuse to be transparent with Congress regarding your interaction with FTX and Sam Bankman-Fried. In February, the committee made multiple requests for documents to the US Securities and Exchange Commission, yet seven months later the committee has not received a single non-public document that was not part of a FOIA production.
McHenry ended by telling the Chairman that the committee’s “patience is wearing thin”, and that the SEC is “not above the law”, inviting the regulator to find a “path forward” or face a first-ever congressional subpoena.
Gensler refuses to acknowledge Bitcoin and Litecoin as commodities
In another segment, Chair Gensler acknowledged that Bitcoin is not a security, but in its typical attitude of encouraging ambiguity, refused to state whether it is a commodity.
Following the admission that Bitcoin is not a security, McHenry asked if Bitcoin was therefore a commodity, to which Gensler said that “the test is otherwise for other laws” regarding its characterisation.
This means that market participants, good faith politicians and even those with just a grain of common sense, are invited to believe that for years, the United States Securities and Exchange Commission has studied Bitcoin and cannot yet come to a decision about its categorisation in financial markets.
Bitcoin and Litecoin are viewed as digital gold and silver, both technically and in the market at large. In 2018, when Gensler did not occupy a position at the SEC, he told Hedge Funds that Litecoin and Ethereum are ‘not securities’.
However, while Litecoin has not meaningfully changed since then, Ethereum underwent a major consensus mechanism overhaul from proof-of-work to proof-of-stake, rendering its market status tenuous and under increased scrutiny, potentially.
Gensler Grilled on capricious BTC spot ETF delays
Critiquing the Chair on a number of issues, US politician and former Army Ranger, Warren Davidson, highlighted that the SEC Chairman is “intentionally shortening comment period to limit feedback” noting a “structural flaw’ in the SEC. His proposed remedy for this structural flaw is the SEC Stabilisation Act, which would replace the post of SEC Chairman by a committee of six representatives.
You are not providing clarity with a ruled that’s evenly applied. You’re intentionally shortening comment periods to limit feedback, and the courts have even called this arbitrary and capricious. You’re pushing a woke political and social agenda, and abusing your role in the authority of the SEC as cover.
🚨 Gary Gensler’s tenure at the SEC highlights two key problems.
1) @GaryGensler problem
2) @SECGov structural problemThat’s why I introduced the SEC Stabilization Act to #FireGaryGensler and restructure the SEC. pic.twitter.com/Ud3giejKfZ
— Warren Davidson 🇺🇸 (@WarrenDavidson) September 27, 2023
A history of misconduct
This latest hearing strongly brings into question whether the entire SEC is fit for purpose, with Chair Gensler’s hostile and capricious behaviour bringing into question the regulator’s authority as an impartial actor.
If politics is ruled out, then SEC employees, starting with Chair Gensler could be dismissed on grounds of incompetence. Then again, the fish rots from its head.
In particular, the regulator’s refusal to allow SPOT Bitcoin ETFs, while allowing riskier futures products has been deemed illogical on all accounts.
Despite widespread recognition of the SEC’s mismanagement of crypto and its demonstrable inadequacy as a regulator under Gensler, low hanging fruit has yet to be picked.
At the same time, questions regarding Grayscale’s financially lucrative position with the status quo, wherein the largest bitcoin asset manager earns a 2% management fee on its 600,000 Bitcoin hoard, has lent credence to the idea that both the regulator and Grayscale are posturing and purposely delaying the arrival of a Spot Bicoin ETF for their own interests, none of which have anything to do with consumer protection.
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