SEC head Gary Gensler signaled Tuesday that the agency would aggressively regulate cryptocurrency markets using existing rules. That sounds scary, but markets have barely blinked – Bitcoin even ticked up slightly this morning. Responses from some industry leaders and analysts were accepting, and even positive.
That’s surprising in an industry used to fending off harmful regulation, and more than anything reflects faith in Gensler’s deep knowledge of both the promise and technical underpinnings of blockchain and cryptocurrencies. Gensler affirmed on CNBC this morning that he is “pro innovation,” and broadly, it seems a lot of crypto types actually believe him.
Among other points, Gensler reiterated the enduring importance of the Howey Test: If a financial instrument promises returns from the efforts of others, it’s a security and can be regulated by the SEC. “I believe we have a crypto market now where many tokens may be unregistered securities,” Gensler said. This was most pointedly a reference to Initial Coin Offerings, or ICOs, a fundraising process in which founders sell tokens to investors before building a system. They have been rife with fraud as unethical operators stand up fake or deceptive “projects” and sell tokens for them.
File that one under “Dog Bites Man” – there have been dozens of prosecutions of individual token issuers on those exact grounds. And while there are still plenty of operators clinging to the idea that “decentralization” makes it okay to issue unregulated securities, their numbers have dwindled.