Ever since the collapse of FTX, the U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler has been cracking down on the crypto industry which he claims is the “West Wild of non-compliance.” To this end, the U.S. capital markets regulator under Gensler has sued some of the biggest crypto companies — including Binance, Coinbase, Gemini, and Terraform Labs — for deceptive practices.
At the heart of the legal dispute between the SEC and crypto firms is the debate over whether cryptocurrencies should be defined as securities, like stocks, or commodities, like wheat or gold. Regardless of the outcome, Gensler’s actions have created a crypto fatigue so acute that everyone—from miners to exchanges to lenders—have become skittish about doing business in the US.
John E. Deaton, a pro-XRP lawyer representing XRP token holders, recently expressed skepticism over Gensler’s understanding of the term “security.” Deaton noted that while Gensler previously gave a lecture on securities, the SEC chair “has no clue” of what a security or an investment contract is.
Apparently, Gensler last year spoke at the Massachusetts Institute of Technology (MIT) about the role of securities law in investor protection, emphasizing the need of transparency to prevent fraud and deceptive sales. He also claimed that cryptocurrencies like Bitcoin, Ether, and Litecoin can’t be considered “securities.”
In a post on social media platform X, formerly known as Twitter, Deaton slammed Gensler’s abstract notions of “security” while questioning the SEC’s application of the Howey test, a set of standards used to determine whether a transaction should be considered as security aka investment contract or not.
“According to him [Gensler], if an asset is being promoted by someone, it transforms the asset into a security. He completely ignores the fact that US securities laws do not apply to the purchase of an asset for non-investment use cases.”
John E. Deaton, a pro-XRP lawyer representing XRP token holders
Meanwhile, Ripple’s Chief Technology Officer, David Schwartz, humorously offered “three pieces of legal advice” based on Gensler’s views on securities. Additionally, Schwartz raised a crucial question regarding the SEC’s stance on crypto regulations that remains unanswered to date, “How does that protect investors exactly?”.
Notably, the SEC chair recently came under fire from US lawmakers for his aggressive stance towards the crypto industry. The backlash came as Wall Street’s top cop made clear its intentions that it plans to bring charges against more crypto companies and decentralized finance (DeFi) platforms that it believes are straying from law. Furthermore, the SEC has delayed multiple spot Bitcoin exchange-traded funds (ETFs)—including that of Blackrock, the world’s biggest fund manager.
