WASHINGTON: The U.S. Securities and Exchange Commission appears likely to work on its first guidelines for cryptocurrencies after President Joe Biden's nominee to lead the agency promised to provide "guidance and clarity" to the rapidly evolving market.
Speaking during his confirmation hearing before the Senate Banking Committee on Tuesday, Gary Gensler offered the first thoughts on handling cryptocurrencies if he is confirmed to lead the top U.S. markets regulator.
"Bitcoin and other cryptocurrencies brought new thinking to payments but raised new issues of investor protection we still need to attend to," Gensler told lawmakers, describing them as "catalysts for change."
As SEC chairman, he would promote the new technology while ensuring investor protections, he said. The SEC has not adopted rules specifically tailored to cryptocurrencies and how they should be treated by people and companies, which some argue has created an unclear rulebook.
"It's important for the SEC to provide guidance and clarity," Gensler said. "Sometimes that's a clarity that will be a thumbs up, but even if it’s thumbs down, it’s important to provide that."
As a decentralized asset created by users, Bitcoin is likely exempt from securities laws. But there is a "strong case" that digital currencies created and issued by companies have likely violated securities law, Gensler said at a conference in 2018. These include the second and third most widely used virtual currencies, which were created by Ripple Labs and Ethereum.
The SEC has said Bitcoin is not a security and is suing Ripple alleging it broke laws with an unregistered digital-asset securities offering. The agency has previously said Ethereum's Ether is not a security, a view that diverges from Gensler's.
Bitcoin hit record highs last month after companies including car-maker Tesla and Mastercard said they were embracing the cryptocurrency.
Globally, the highly volatile cryptocurrency market was worth roughly US$1.45 trillion as of Tuesday afternoon, up from around US$200 billion two years ago, according to data from CoinMarketCap.
The crypto industry as well as some SEC officials have for years been calling for clarity over how cryptocurrencies fit into securities laws. Previous SEC chief Jay Clayton took the view that most coin offerings, a cryptocurrency fundraising mechanism, appeared to run afoul of securities laws.
DESIRE FOR REGULATORY CERTAINTY
Leading the CFTC in the aftermath of the 2009 financial crisis, Gensler implemented complex new derivatives rules, often butting heads with Wall Street groups. He later taught a class on cryptocurrencies at MIT.
"Gensler would bring to the job a high degree of knowledge about crypto, and I think that's helpful for someone trying to regulate in this space," Hester Peirce, a Republican SEC commissioner who has supported clearer rules for digital assets, told Reuters last month.
The growing embrace of digital assets by companies and investors adds to the urgency, Peirce added.
"Industry has been pretty clear they would like more regulatory certainty they were not able to get that under Chair Clayton. I think Mr. Gensler understands that," said Matthew Kulkin, co-chair of Steptoe & Johnson LLP's Financial Services Group.
(Reporting by Chris Prentice and Pete Schroeder; additional reporting by Anna Irrera; Editing by Cynthia Osterman)