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During a fireside chat at the New York University Law Institute for Corporate Governance and Finance, SEC Chair Gary Gensler faced tough questions from law students and former SEC Commissioner Robert Jackson Jr. about the agency’s stance on regulating cryptocurrency.
The discussion, which took place on Wednesday, centered around the SEC’s reliance on the Howey Test—a legal standard from a 1946 Supreme Court case—to determine whether a digital asset qualifies as a security. Jackson questioned whether it was appropriate to apply this decades-old framework to modern digital assets, asking, “Is that the way we should oversee cryptocurrency, by trying to apply a 1940s Supreme Court decision to this technology?”
Gensler defended the approach, stating that the Howey Test is “the law of the land,” and emphasized that its purpose is to protect investors by ensuring proper disclosures. He reiterated that securities laws are meant to provide transparency, regardless of the asset type—whether it be cryptocurrency, green energy, or artificial intelligence.
In recent years, the SEC has taken enforcement actions against major crypto companies like FTX, Binance, Kraken, and Coinbase. Gensler has consistently argued that most cryptocurrencies qualify as securities, requiring crypto firms to register with the agency. However, crypto companies contend that the current regulatory framework, designed for traditional financial entities, is not well-suited for the digital asset space.
Gensler highlighted fraud in the crypto industry as a significant concern, citing an FBI report noting a 45% increase in losses tied to crypto scams over the past year. “With all respect, the leading lights of this field in 2022 are either in jail or awaiting extradition right now,” Gensler remarked, pointing to the recent collapses of prominent crypto companies and figures.
When asked by Jackson whether it would be better to create a new regulatory framework for digital assets, Gensler responded that the current legal structure already provides the necessary oversight. “Just because people don’t like the law doesn’t mean there’s no law,” he said, adding that crypto exchanges need to follow existing rules.
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Students also questioned Gensler about the SEC’s use of the term “crypto asset securities” and whether the agency’s position was clear enough. Gensler responded that the agency has consistently communicated its stance, dating back to the tenure of former SEC Chair Jay Clayton.
One student raised concerns about the utility of tokens if they were forced to comply with SEC regulations. Gensler emphasized that the SEC is “merit-neutral” and that investors should decide the utility of these tokens through disclosure and usage, but he also noted that it’s unlikely cryptocurrencies will evolve into a widely accepted currency. “It’s unlikely this stuff is going to be a currency,” he said. “It’s going to have to show its value through disclosure, through use.”
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