Sen. Pat Toomey presses SEC Chair Gensler for crypto clarity

Toomey said that the SEC has brought enforcement actions against issuers of digital assets for failing to register with the agency as an public issuer of securities, but has failed to identify “the securities involved or the rationale for their status as securities, which would have provided much-needed public regulatory clarity.”

The Senator requested that Gensler elaborate on why he believes stablecoins, or cryptocurrencies designed to maintain their value relative to the U.S. dollar DXY, -0.20%, could possibly be considered securities under U.S. law and therefore under the authority of the SEC, as Gensler had stated in a hearing earlier this month.

Stablecoins, including Tether USDTUSD, -0.02% and USD Coin USDCUSD, have become important instruments in the crypto market, facilitating the trading between various digital assets like bitcoin BTCUSD, -2.97% and ether ETHUSD, -4.95%.

“In defining the scope of the market that Congress wished to regulate, Congress painted a broad brush,” Gensler said during the hearing. “It actually included about 35 different things inside that definition of a security.” Toomey asked Gensler to specify exactly which of these definitions apply to stablecoins.

The Pennsylvania Republican also requested that Gensler explain why the SEC has treated bitcoin and ether as commodities, despite the Chairman’s previous statements that the vast majority of digital assets are securities. Toomey pointed to a 2018 article in the New York Times, when Gensler suggested that ether was a security at the point of its creation but transitioned to commodity status at some later point.

“The concept that [ether] can transition to a commodity because ‘its development has been more decentralized’ appears to conflict with your past statements that all ICO tokens are securities,” Toomey wrote. “I understand there are pending court cases that may address this very issue, but as we await decisions in these cases, can you clarify your position as to when a token is sufficiently decentralized in light of your previous statements?”

Bitcoin and ether’s semiofficial status as commodities — there has not been official SEC or court guidance to this effect, only legally non-binding statements by previous SEC officials — has given the assets tremendous advantages relative to other newer cryptocurrencies whose issuers face potential lawsuits from the SEC failing to register with the agency.