Senator Toomey, the highest-ranking member of the Senate Banking Committee has hit back at Gary Gensler, the Chairman of the United States Securities and Exchange Commission for likening cryptocurrencies to commodities and standard stocks.
While addressing the Senate Banking Committee, the SEC Chair, Gary Gensler who has continuously launched attacks on the crypto industry asserted that almost all cryptocurrencies possess the characteristics of conventional security and hence, should be registered and regulated accordingly. To buttress his stance, Gensler mentioned that there is a popular test rolled out by the Supreme Court used for determining whether most tokens are securities or not.
He added that Bitcoin (BTC), the first and leading cryptocurrency by market capitalization functions similar to traditional commodities, citing also that most tokens are comparable to standard stocks. Senator Toomey, who had a counter-view, argued that cryptocurrency tokens should not be considered a security because they possess distinguishing characteristics. In addition, he said that these factors should be put into consideration when developing a regulatory framework.
These differentiating factors talked about by the Senator include decentralization, lack of financial claim on the token issuer, and no middlemen needed for settlements. Speaking on the issue of middlemen, Gary Gensler disclosed his thoughts to the skeptical panel as well as what the Supreme Court justices take into consideration in the Security Test.
“The developer is stuck in the middle, and investors are gambling on them – even if the token might be found on a thousand computers. It’s not whether or not the token is on a thousand computers. They’re looking at something else entirely,” he said.
Still, in response to Toomey, the SEC Chair noted, “there are many factors. It’s not one spectrum of decentralization versus decentralization.” Furthermore, he argued that the fact that crypto operations are facilitated through the use of blockchain technology is not a determining factor in how it should be regulated.
While the SEC Chair’s explanation was not satisfactory at the BankingGOP hearing, Senator Toomey commented;
“It is not practical to fail to define precisely where on this scale you have a big enough shared enterprise that it classifies as a security and where you don’t,” he said. “You’ve said Bitcoin doesn’t. Your colleagues say Ethereum doesn’t, but a diligent developer who wants to obey this don’t know where that line is drawn.”
Eleanor Terrett, a producer, and journalist at FOX Business also said; “Did Gary Gensler indirectly reveal his stance on Ethereum at today’s BankingGOP hearing? “A common enterprise, a group of individuals in the middle…that developer is in the middle and the investing public is betting on them, counting on them even if the token might be on a thousand computers. It’s the group of developers in the middle.”
“Ethereum’s merge was pulled off by a group of core developers that (arguably) the public was counting on to execute and get right. Does that make it a common enterprise, thus a security in Gensler’s eyes?”
"A common enterprise, a group of individuals in the middle…that developer is in the middle and the investing public is betting on them, counting on them even if the token might
— Eleanor Terrett (@EleanorTerrett) September 15, 2022
It is worth noting that the SEC is currently battling with Brad Garlinghouse’s Ripple in an XRP lawsuit. This SEC claims that the issuance of the XRP token violated the Securities rule as it was unregistered. Meanwhile, both William Hinman and John Berry, former officials of the regulatory body, have noted that XRP is similar to both Bitcoin (BTC) and Ethereum (ETH).