SEC Chairman Gary Gensler (Photo by Brendan Smialowski/Getty Images)
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At a highly anticipated congressional hearing today, U.S. Securities and Commission (SEC) Chairman Gary Gensler and his fellow commissioners faced intense scrutiny over the agency’s handling of regulation of digital assets.
For the first time since 2019, all five commissioners, including Caroline Crenshaw, Hester Peirce, Jaime Lizárraga and Mark Uyeda, testified together before the House Financial Services Committee. The hearing highlighted growing tension surrounding the SEC’s oversight of cryptocurrencies, which critics say has become excessive and legally ambiguous.
Committee Chairman Patrick McHenry, a North Carolina Republican, wasted no time setting the tone, accusing Gensler of what he sees as regulatory overreach. “Chairman Gensler’s legacy will be defined by transforming the once-proud institution of the SEC into a rogue agency,” McHenry said, accusing the SEC of enforcing regulations “often without adequate justification, economic analysis, or public engagement.” The SEC’s heavy-handed approach has targeted a wide range of US crypto companies, from exchanges like Coinbase to decentralized finance (DeFi) platforms like Uniswap.
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SEC Commissioner Hester Peirce, often nicknamed “Crypto Mom” for her industry-friendly stance, has criticized her agency’s lack of clarity in defining what constitutes a security. “We have taken a legally imprecise view to mask the lack of regulatory clarity,” Peirce said. “By using imprecise language, we were able to somehow suggest that the token itself is a security, outside of the investment contract, that has implications for secondary sales and who can list it. We failed to our duty as regulator.
Gensler has consistently pointed to the Howey test – a legal framework established by the U.S. Supreme Court that determines whether a transaction is an investment contract and therefore should be subject to U.S. securities laws – as the backbone of its regulatory approach. However, Rep. Ritchie Torres (D-NY) took issue with Gensler’s interpretation of the test applied to non-fungible tokens (NFTs). Torres called Gensler’s reading “idiosyncratic,” noting that the SEC’s logic could transform “just about any collectible or consumer good or any work of art or any what a piece of music” safe. “It’s so open that it blurs the line between collectibles and security, between art and security,” Torres remarked.
Resistance to Gensler’s approach is not limited to the crypto industry: lawmakers on both sides have expressed frustration. One of the most controversial issues is Staff Accounting Bulletin (SAB) 121, which requires custodians of digital assets to treat them as liabilities on their balance sheets. The rule sparked rare bipartisan pushback, with 33 Democrats joining Republicans in voting to repeal the policy, which critics say imposes onerous capital requirements on banks seeking to expand their crypto businesses.
Ranking Member Maxine Waters (D-CA) took a more measured tone, emphasizing the need for legislative action beyond the purview of the SEC. “Before the end of this year, I want us to reach a big negotiation on stablecoins and other long-awaited bills,” she said, signaling that Congress could finally make the decision that many in the industry have been waiting a long time.
Amid regulatory turmoil, crypto’s role in American politics has expanded significantly. Both presidential candidates recognized the importance of digital assets to the future of the U.S. economy, a stark contrast to the industry’s once fringe status. This new political clout is illustrated by the rise of Fairshake, a super PAC funded by the largest cryptocurrency companies, including Ripple, Andreessen Horowitz, Coinbase and Jump Crypto. During the 2024 election cycle, he supported the winning candidate in 33 of the 35 House and Senate primaries he participated in, according to CNBC, with notable victories in states like Utah, California and New York .
