In a statement released Wednesday, Gary Gensler publicly expressed his dissent against the Financial Innovation and Technology for the 21st Century Act.
Gensler’s statement highlighted the potential consequences of the FIT21 bill, stating that it “would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk.”
The FIT21 bill, produced by the House Agriculture Committee and the House Financial Services Committee, aims to clarify how the SEC classifies crypto by creating a “digital commodity” term for digital assets.
Gensler’s concerns
Gensler cited seven concerns with the bill, primarily focusing on the removal of investment contracts recorded on the blockchain from the protection of federal securities laws. This removal, he argued, would put investors at risk.
The bill also proposes a means for crypto contracts to become “decentralized” and out of the SEC’s oversight, effectively omitting any SEC involvement. Companies would be allowed to self-certify that they’re issuing “digital commodities,” giving the SEC only 60 days to approve if the asset meets the criteria for a digital commodity.
Gensler contends that more than 60 days is needed for the SEC to enact proper oversight.
“There are more than 16,000 crypto assets that currently exist,” Gensler wrote, “Given limits on staff resources, and no new resources provided by the bill, it is implausible that the SEC could review and challenge more than a fraction of those assets.”
Gensler also argued that the bill would detriment the U.S. capital markets by allowing dubious investors and companies to circumvent the SEC by claiming to be decentralized networks.
“What if perpetrators of pump and dump schemes and penny stock pushers contend that they’re outside of the securities laws by labeling themselves as crypto investment contracts or self-certifying that they are decentralized systems?” Gensler wrote.
The House of Representatives is expected to vote on the bill later on Wednesday.
Public responses
Alexander Grieve, government affairs lead at Paradigm, stated that it is “potentially noteworthy that @garygensler didn’t specify whether this statement was in his personal or official capacity, or whether it represents the actual view of the @SECGov commission (both past and present). Plausible deniability? Gary on an island? Time will tell.”
Matthew Graham, Managing Partner of Ryze Labs, piggybacked off that sentiment, saying on X that the “SEC making this politically motivated decision on Ethereum ETF is a great outcome for crypto industry. but it’s worth knowing that this further erodes SEC legitimacy. now we know that Gensler is not just a hack, but a partisan hack.”
SEC making this politically motivated decision on Ethereum ETF is a great outcome for crypto industry. but it’s worth knowing that this further erodes SEC legitimacy. now we know that Gensler is not just a hack, but a partisan hack. https://t.co/KA1juFJb5S
— Matthew Graham (@mattyryze) May 22, 2024
Congressman Wiley Nickel cited some support of the bill, comedically saying, “Gary Gensler is right about one thing: our securities laws are 90 years old!”
If FIT 21 is passed later this week, it will be pushed to the Senate for approval and will not become law until the end of the year.