SEC’s Gary Gensler Grilled by Congress on What Defines Crypto as Security

Members of Congress, led by Chairmen Glenn Thompson and Patrick McHenry, along with Representatives French Hill, Dusty Johnson, Tom Emmer, and Warren Davidson, have raised concerns over the Securities and Exchange Commission’s (SEC) treatment of Ethereum (ETH) and its classification as a security or commodity.

The inquiry centers on the SEC’s recent dealings with Prometheum, sparking widespread debate on the clarity and implications of crypto regulation.

Lawmakers Demand Answers: Are Cryptos Securities?

The congressional letter to SEC Chair Gary Gensler highlights the approval of Prometheum, a Special Purpose Broker-Dealer (SPBD), to provide custody services for crypto to institutional clients. This decision has raised eyebrows, given the longstanding recognition of Ethereum as a non-security by the SEC and the Commodity Futures Trading Commission (CFTC).

The lawmakers’ letter seeks clarity on the SEC’s position. Especially, regarding the ability of SPBDs to custody non-securities and its broader regulatory approach to digital assets.

The SEC and CFTC have historically recognized Ethereum as a commodity, with significant regulatory actions rooted in this classification. The CFTC’s acceptance of Ethereum futures contracts underscore tthis perspective. Yet, Gary Gensler’s reluctance to explicitly classify Ethereum has led to uncertainty within the crypto markets.

“The negative repercussions of the SEC implicitly or directly classifying ETH as a digital asset security will cascade throughout the digital asset marketplace both in the short and long term. The immediate impact on the ETH commodity derivatives markets is apparent,” lawmakers wrote.

This situation highlights the ongoing struggle for clear regulatory guidelines in the cryptocurrency market. The SEC’s enforcement actions against crypto trading platforms for failing to register as brokers or exchanges further exacerbate this uncertainty.

As a result, the lawmakers’ call for clarity and consistency in crypto classification aims to protect market integrity and foster innovation within regulatory bounds.

“Allowing one market participant and regulation by enforcement to dictate the future of digital asset regulation is unacceptable. This is precisely why Congress is working to set guidelines for firms that participate in the digital asset markets,” lawmakers added.

Read more: Crypto Regulation: What Are the Benefits and Drawbacks?

The SEC’s response could significantly influence the future of cryptocurrencies, impacting market participants and the broader regulatory framework governing these emerging technologies. With the stakes high, the call for regulatory clarity and a balanced approach to digital asset classification has never been more urgent.

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