Lawyers Criticize Gary Gensler for Hints About Crypto Status

Legal experts in the crypto-law field criticized SEC Chair Gary Gensler for hints that all digital assets aside from Bitcoin may be securities.

On February 23, in an interview with New York Magazine, the official indicated that such a status would give investors the expectation of profits to be derived from the efforts of others. The latter employ a multitude of complex and legally opaque mechanisms to attract buyers.

Industry experts were unanimous — the SEC does not have the appropriate mandate to regulate the new asset class.

Jake Chervinsky of the Blockchain Association stressed that “Gensler’s opinion is not law”:

“The SEC does not have the authority to regulate any of them [digital assets] until it proves its case in court. For each asset, individually, one at a time.”

Chair Gensler may have prejudged that every digital asset aside from bitcoin is a security, but his opinion is not the law. The SEC lacks authority to regulate any of them until and unless it proves its case in court. For each asset, every single one, individually, one at a time.

— Jake Chervinsky (@jchervinsky) February 26, 2023

“In this country, judges—not SEC chairs—ultimately determine what the law means and how it applies. The Тест Хауи itself is the law, adopted by a judge. It was not developed by the SEC. … The words ‘yes, I think that x, y and z are securities’ do not, legally, mean that they actually are,” — explained the lawyer.

Leading specialist at the Bitcoin Policy Institute Jason Brett noted that Gensler’s statements should not be celebrated, but feared, since there are ways to win besides a regulatory moat.

The Gary Gensler thing is no bueno. There are ways to win other than via a regulatory moat. And anytime this is the way, the script can be flipped and before you know it, everyone is crying due process. Gensler’s comments in NY Magazine shouldn’t be celebrated, but feared.

— Jason Brett (@RegulatoryJason) February 26, 2023

“The scenario can be changed. Before you know it, everyone will start ‘crying’ over due process,” warned the expert.

The chief counsel at Delphi Labs, Gabriel Shapiro, questioned the SEC’s ability to mount a mass of enforcement actions against industry players to “cement the rules.”

@coingecko puts the total crypto market cap at $1.13T, consisting of 12,306 tokens

BTC is $467B/~40% of that

ex hypothesi, this means 12,305 tokens/$663B in value are illegal in the U.S. b/c they trade publicly as unregistered securitieshttps://t.co/JPGEkPp1XR. pic.twitter.com/lenBWW9JvY

— _gabrielShapir0 (@lex_node) February 26, 2023

“CoinGecko values the total cryptocurrency market cap at $1.13 trillion, composed of 12,306 tokens. Bitcoin’s share is $467 billion, about 40% of that. That means 12,305 tokens worth $663 billion are illegal in the United States because they trade publicly as unregistered securities,” — calculated him.

The expert noted that previously the SEC acted in two ways:

1. Fines plus a registration requirement (this did not always work when companies went bankrupt).
2. Fines plus an order to burn all pre-mined tokens and delist them from all exchanges.

The Kik / KIN and EOS cases stand apart. The SEC limited itself to imposing only a fine. No other startup received such treatment, Shapiro added.

The expert noted that for most token creators the issue is not only registration, which is out of reach for many.

“There is no clear regulation (regardless of how many times Gensler says otherwise); too many new questions (for example, is every protocol change a new “proposal”?),” — explained Shapiro.

He concluded that because registration is not feasible, companies will be forced to pay huge fines, stop work on protocols, destroy all predevelopment work and accept delisting of tokens.

why do journalists not ask Gensler about this in his countless media appearances? why do they let his claims of «just register» go unchallenged? what is the plan? we are all wondering, and billions of American $ are at risk@GOPMajorityWhip @PatrickMcHenry please act fast

— _gabrielShapir0 (@lex_node) February 26, 2023

“This would mean 12,305 lawsuits and the market value of $663 billion would vanish. Why don’t journalists ask Gensler about this in his countless appearances in the media? Why do they leave his ‘just register’ claims unanswered? What’s our plan? We’re all wondering. Billions of American dollars are at risk,” — said the expert.

In conclusion, Shapiro urged Congress, in the person of House Speaker Patrick McHenry, to respond to the situation.

As a reminder, Gensler named regulation of cryptocurrencies a priority for 2023. Later the agency put forward for discussion a proposal to expand and strengthen the role of qualified custodians with respect to digital assets.

Earlier, the Commission Chair named the crypto market centralized. He urged platforms to approach the SEC about recognizing a given asset as an investment contract. He also warned of possible prosecution of unregistered Bitcoin exchanges.