US House members demand crypto answers from SEC leaders
“Chair Gensler’s legacy will be defined by turning the once proud institution of the SEC into a rogue agency,” Rep. Patrick McHenry said
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Welcome to the On the Margin Newsletter, brought to you by Ben Strack and Casey Wagner. Here’s what you’ll find in today’s edition:
- House members faced off against SEC leaders, seeking answers about their crypto agenda. Casey breaks it down.
- Lawmakers have written another letter to SEC Chair Gary Gensler. What’s it about this time?
- After VP Harris breaks her silence on crypto, two US Reps get set to appear at a “Crypto4Harris” event.
House members demand answers from SEC at historic hearing
US House Financial Services Committee members grilled SEC leaders Tuesday, demanding explanations about the agency’s agenda and rulemaking practices — particularly when it comes to digital assets.
The hearing, entitled “Oversight of the Securities and Exchange Commission,” marked the first time all five SEC commissioners appeared together before the committee since 2019. SEC Chair Gary Gensler appeared alongside Caroline Crenshaw, Jaime Lizárraga, Hester Peirce and Mark Uyeda.
Unsurprisingly, we didn’t get answers to some of the more pressing questions raised by some as of late, such as:
- How do you define a digital asset security? Or…
- Is ether a security? And if not, why is Prometheum listing it on its securities-only custody platform?
Committee members largely toed their respective party lines, with a few bipartisan exceptions that we’ve seen before (looking at you, Rep. Ritchie Torres, D-N.Y.)
“Chair Gensler’s legacy will be defined by turning the once proud institution of the SEC into a rogue agency,” Committee Chair Patrick McHenry, R-N.C., said during his prepared remarks.
The commissioners, although appearing in person together, do not represent the opinions of the agency as a whole, Gensler clarified ahead of the hearing.
When asked specifically about crypto tokens and their status as securities, Gensler repeated a stance he has taken in the past — that the agency relies on the Howey test to determine “whether an asset class is being offered to the public.”
Other committee members were less concerned with the agency’s dealings with crypto, suggesting the common notion that commissioners need to “create” digital asset regulations is unfounded.
“We can provide clarity, although I don’t think it’s necessary; we could pass an additional statute to clarify that crypto is a security,” Rep. Brad Sherman, D-Cali., said.
Peirce and Uyeda have emerged as the SEC’s pro-crypto minority, frequently issuing dissenting opinions on blockchain-related enforcement actions.
“It’s a very bad approach to [try] to regulate an industry if you’re trying to protect investors,” Peirce said Tuesday, responding to a question about the effectiveness of the SEC’s so-called “regulation by enforcement” strategy.
“It’s very inefficient, and at the end of the day, it leaves everyone wondering where the lines of our authority are,” Peirce added.
All in all, it was a somewhat spicy, albeit fairly predictable, hearing. We got some hot sound bites, but not much in the way of answers. Plus, things are likely to change after November — both in the House and potentially on the commission — particularly if Trump wins.
Gensler was slated to head to the Senate Wednesday for another round of questions, but the hearing was postponed. A new date for the hearing has not been announced.
— Casey Wagner
6
The number of days until the end of the US federal fiscal year. Congress has until Sept. 30 to clear a funding plan to prevent a government shutdown.
The House of Representatives on Monday unveiled a new stopgap spending bill that would fund the government for 90 days. Lawmakers plan to vote on the bill Wednesday. The bill would push long-term spending legislation until after the Nov. 5 election.
Lawmakers urge SEC to rescind SAB 121
Discussion around SAB 121 has reared its head again.
SAB 121 is the SEC staff accounting bulletin (hence the aforementioned acronym) deemed by many as vehemently anti-crypto for reasons touched on below.
In case you don’t remember, the US Senate in May passed a measure — H.J. Res. 109
— to invalidate it. But then President Joe Biden vetoed that resolution.
So here we are, with 42 House members and senators telling SEC Chair Gary Gensler the agency should rescind SAB 121, citing the previous “overwhelming bipartisan votes” for the resolution to void it.
Basically, the SEC guidance would require custodians to recognize a liability and hold a corresponding offset on their balance sheets, measured at the fair value of the customer’s digital assets.
“This accounting approach, which deviates from established accounting standards, would fail to accurately reflect the underlying legal and economic obligations of the custodian, and place consumers at a greater risk of loss,” the lawmakers noted in their letter Monday.
Such requirements have “effectively precluded” banks from safeguarding crypto, various financial organizations argued in a February letter, also addressed to Gensler.
Indeed, Cantor Fitzgerald CEO Howard Lutnick alluded to SAB 121 earlier this month when he noted why some financial giants have not yet delved into the crypto space.
The House and Senate’s vote on H.J. Res. 109 was “a clear message from Congress to the SEC,” the members of congress said in this week’s letter. Twelve Democratic senators strayed from their party’s status quo hesitancy on embracing crypto to join Republicans in voting for it.
“Issuing staff guidance to impose policy changes is not appropriate and violates both the spirit and the letter of the Administrative Procedure Act,” the politicians wrote.
As you might recall, the SEC has previously been accused of violating the APA.
Though a completely different situation, Grayscale Investments argued in 2022 that the SEC was violating the Act by acting “arbitrarily and capriciously,” and not treating cases alike (approving bitcoin futures ETFs, but not spot BTC funds).
We know how that ended.
— Ben Strack
A deeper look at Harris breaking her crypto silence
We’ve written about how crypto has become an election topic. At least kind of.
It didn’t get any attention during the last debate. But Donald Trump has spoken plenty about the space — making various crypto-related promises without offering specific policies per se.
Kamala Harris has been even more scant on details, only recently mentioning digital assets during an event with donors on Sunday, Bloomberg reported. Essentially she said she would look to encourage such innovative technologies, while protecting investors.
The comments from Harris come as the group seeking to drum up support for the vice president — dubbed Crypto4Harris — is in the middle of a string of events.
Crypto4Harris has a fundraiser scheduled for tonight, in fact. It’s a Manhattan rendez-vous on 3rd Ave. that US Reps. Wiley Nickel, D-N.C., and Dan Goldman, D-N.Y., are supposed to attend.
Senate Majority Leader Chuck Schumer appeared during a Crypto4Harris virtual event in August; billionaire Mark Cuban and SkyBridge Capital founder also showed face. Some criticized the event, pointing out nobody from Harris’s team (nor the VP herself) was present.
But now Harris has broken her silence on crypto, which could maybe lead to more remarks from her and Trump? This coincides with the wrap-up of nonprofit group Stand With Crypto’s tour across battleground states (Arizona, Nevada, Michigan, Wisconsin and Pennsylvania).
“Stand With Crypto advocates have made their voices heard, and presidential candidates are listening,” executive director Logan Dobson said in a statement. “It’s encouraging to hear Vice President Harris recognize what 52 million Americans have been saying — that digital assets and cryptocurrency are playing an essential role in driving US economic growth and prosperity and can do even more if given clear guidelines.”
Harris, while vowing to help grow investment in digital assets, mentioned the same for AI.
Dramane Meite, head of product at crypto asset manager Hashdex, said crypto’s decentralized frameworks offer “a natural counterbalance” to the growing centralization of AI.
“As AI continues to develop and take on greater importance in the global economy, digital assets will likely serve as both a critical infrastructure component and a tool to address some of AI’s most pressing challenges,” he noted in a statement.
Whether substantive crypto policy proposals come from Harris in the next 40 or so days remains to be seen. And we don’t know whether Trump would actually deliver on his crypto pledges (such as to fire Gensler or “keep 100% of all bitcoin the US government currently holds or acquires”).
We’re ready to report on any and all developments on these fronts, if and when they come.
— Ben Strack
Bulletin Board
- We spoke about the SEC plenty above. But one other note: The agency on Tuesday revealed a settlement with TrustToken and TrueCoin for allegedly defrauding investors regarding TrueUSD. The duo are slated to pay $163,000 apiece, with TrueCoin to pay a disgorgement of $340,000. Neither entity confirmed nor denied the SEC’s findings.
- China on Monday shared plans for a rare economic briefing and, minutes later, opted to lower 14-day reverse repurchase rates and set aside 500 billion yuan to support the domestic stock market. The move is widely expected to support sustainable economic growth through the end of 2024.
- Sean “Diddy” Combs is living in the same unit of the Metropolitan Detention Center as FTX founder Sam Bankman-Fried, the New York Times reported this morning. SBF has been in the Brooklyn jail since August 2023 when his bail was revoked ahead of trial. He is now serving a 25-year sentence.
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