Incompetent Crypto Cop: SEC Chair Gary Gensler Grilled by US Congress

“An incompetent cop.”

Nope, I’m not talking about Hitchcock or Scully, from Brooklyn 99.

I’m talking about Gary Gensler, the chairman of the US Securities and Exchange Commission (aka SEC).

That’s ☝️ how Tom Emmer, a US congressman referred to Gensler during his testimony last week.

That’s right!

US Politicians didn’t hold back with Gary Gensler in front of them. Instead, they blasted him like they were on a diss track rapping to a sick beat. 🎤

I’m surprised they were no Yo Mamma jokes thrown into the mix. 🤣

Here are some top-3 🔥 mic-drop moments from Gensler’s 5-hour testimony:

1️⃣ Is Ether a security?

The biggest takeaway was Gensler dodging the question – is Ethereum’s native token a security?

Quick history lesson:

• In 2019, Gensler’s predecessor – Jay Clayton – during his tenure said ETH was not a security.
• In 2018, Bill Hinman, former Director of Corporation Finance at SEC, said ETH was not a security.

But Gensler ain’t so direct.

So, is ETH a security? Or a commodity?

Our man, double G, said – look all securities are commodities.

Wait, what is a security anyway?

To qualify as an asset as a → security, the SEC uses The Howey Test.

This test needs to answer if an asset:

1. Is it an investment of money?
2. Is it in a common enterprise?
3. Is there an expectation of a profit?
4. Is it derived from the efforts of others?

Gensler’s main issue is – when Ethereum went from PoW to PoS in September 2022 – ETH became a security because:

Ethereum’s move to PoS ticks points #3 and #4 of the Howey Test – ETH investors have an expectation of a profit (staking rewards) and it’s done by the effort of others (stakers).

And that’s why the SEC is going after 🇺🇸 crypto exchanges that offer staking services, like:

• Gemini
• Kraken
• Coinbase

The official charge is these companies offer trading in “unregistered securities” aka Ether.

But Gensler was 🤫 mum 🤫 on this point ☝️ when asked this during the testimony.

2️⃣ Difficulty to register

For crypto companies to register with the SEC ain’t easy. It’s more difficult to register with the SEC than beat Red Bull in Formula 1.

Back in 2021, Gensler called on lawmakers to give the SEC a ton of power to oversee:

• crypto exchanges
• crypto lending platforms
• decentralized finance protocols

Congressman Tom Emmer (the one who called Gensler an “incompetent cop”) said the SEC made it more difficult for US crypto companies to access capital or financial products.

As a hat-tip to this, just last month – the biggest crypto bank Signature Bank was forcibly closed by NY-based regulators. Members of the bank’s board said regulators shut down Signature to send an “anti-crypto message”

In the words of the great Dogefather, Elon Musk – “message received.”

And the numbers speak for themselves:

How many rules have the SEC issued that accommodate the industry?

= 0

How many enforcement actions has the SEC levied against crypto companies?

= 55

Yeah Gensler my man, a 0-55 record ain’t good. 🥲

Not just that the SEC has not issued any guidelines on – how a digital asset company can register with the SEC, conduct business legally, and launch products.

Fun fact: In March 2023, Coinbase received a “Wells Notice” (a formal notice before an enforcement action) because it claimed Coinbase listed tokens as “securities.” But it didn’t specify which of the 250+ tokens on Coinbase were “securities.”

This ☝️ is why US Congressman Warren Davidson called for:

• the removal of Gensler
• restructuring of the SEC

So that crypto companies can register seamlessly, get financial support, and prevent talent and capital from moving overseas.

3️⃣ No use, just Abuse

Gensler isn’t exactly a fan of crypto. But he’s a professor of it.

wait what?!?

Yup, double G taught a course at MIT’s Sloan School Of Management called – Blockchain and Money and has taught courses on Crypto and Finance.

But get this – he’s never:

• bought (or sold) Bitcoin, ETH, or other cryptos
• used any DeFi protocols
• or even interacted remotely with (open-source + public) blockchains.

So, I guess we can rename the courses to:

Blockchain and Money →  "I’ve never used Blockchain and Money"

Crypto and Finance →  "WTF is Crypto and Finance?"

🤣

None of these matter directly to the regulation of crypto and crypto companies.

But Gensler’s often seen bringing up these courses as proof that he understands the industry. (In fact, he brought it up when asked rather than the Congressman bringing it up 🫢)

Imagine not knowing how a complex technology worked.

But creating regulations that stifle companies building on this complex technology.

I haven't seen an aging bald dude play such a villainous role since Charles Montgomery Burns in The Simpsons.

Come to think of it, the resemblance is uncanny. 🤣

And watch our set of best YouTube shorts from Gensler on Congress Hearings.

What do you think of the SEC chair’s actions against US crypto companies? And if Congress started to defend crypto companies, is it a good sign for a better regulator's attitude? Share in your feed and let us know in the telegram group. 🗣️