A Look Into the Future of Cryptocurrency Regulation

Signaling the potential future of cryptocurrency regulation in the United States, Gary Gensler, the Chairman for the Securities and Exchange Commission (SEC), shared his perspective that the majority of crypto tokens are indeed securities under U.S. law while presenting at the SEC Speaks event in early September. [1]

Along with the sharing his viewpoint that the majority of crypto tokens and cryptocurrency intermediaries are subject to federal securities laws and regulations, Gensler also shared a quote from the first SEC Chairman, Joseph Kennedy: “No honest business need fear the SEC.” [1] Gensler’s repeated reference to this quote supported his overarching message that regulatory oversight of crypto tokens and intermediaries should be viewed as a positive for the market rather than a negative.

In first speaking on crypto tokens themselves, Gensler noted that the purchase and sale of these tokens are subject to federal securities laws so long as the tokens meet the statutory definition of a security. Gensler cited Congressional purpose and history as well as the Supreme Court’s “Howey Test” in support of his view. [1]

Gensler pointed out that Congress intended a broad scope for the definition of a security, citing Justice Thurgood Marshall’s statement that “Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called.” [1]

Gensler then turned to the Supreme Court’s “Howey Test,” which sets forth the factors that comprise one form of security: an “investment contract.” [1] In line with the Howey Test, Gensler concluded that, because crypto investors buy and sell crypto tokens with the expectation of “profits derived from the efforts of others in a common enterprise,” the tokens are indeed investment contracts; thus, they are securities subject to federal securities laws.

Beyond discrete crypto tokens, Gensler also stated that the intermediaries, which host the exchange of crypto tokens, must also likely register with the SEC in order to comply with federal securities laws. Crypto intermediary platforms “match orders in crypto security tokens of multiple buyers and sellers using non-discretionary methods,” and this meets the legal test for regulatory oversight.

While Gensler views the majority of crypto tokens and cryptocurrency intermediaries as subject to regulation and oversight by the SEC, his remarks sought to underscore the merits of such regulation for all market participants.

He noted that those offering crypto tokens or operating crypto intermediary platforms should have open dialogues with the SEC to help ensure that any token or platform which legally requires registration with the SEC may avoid potential legal issues in the future.

Gensler also emphasized the important investor protections offered by SEC oversight of crypto tokens and intermediaries. In concluding his remarks, Gensler highlighted his view that crypto simply offers a new technology for the issuance and trading of securities, and the adoption of a new technology should not deprive the investing public of the critical benefits offered by required disclosures and registration with the SEC.

Although Gensler’s remarks are not representative of official guidance from the SEC, they shed light on the importance of regulating crypto markets, specifically as they expand in popularity and adoption by the general public. With regulatory oversight under existing federal securities laws, crypto investors gain important assurance of the legitimacy and safety of their investment portfolios.


[1] https://www.sec.gov/news/speech/gensler-sec-speaks-090822

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