The U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has faced backlash from the crypto community after using a dog-goldfish analogy to explain the importance of compliance with security laws in a video tweet on April 27.
In his analogy, Gensler said that crypto platforms were offering “investment contracts” and calling them anything but would be like walking a dog without a leash and calling it a goldfish to avoid legal issues.
He continued that security laws were essential for investor protection and that “crypto markets suffer from a lack of regulatory compliance; It’s not a lack of regulatory clarity.”
“Many crypto platforms are just pretending that these investment contracts that they offer are more like goldfish and the lack of compliance by these crypto platforms means that you don’t have basic investor protections.”
He further noted that many crypto platforms combine the activities of an exchange, a broker-dealer, and a clearing house all into one, and not registering these functions puts investors at risk.
It doesn’t matter if you call yourself onshore or offshore. If you make securities available to American investors, you must comply with American laws. The law is clear. If you’re a securities exchange, clearing house, broker-dealer, you must come into compliance, register with us and deal with conflicts of interest and disclose important information.
While Gensler’s analogy could have been intended to be a simple explanation of securities laws, it faced swift backlash from the crypto community.
Crypto Community backlash
Critics in the comments of the tweet slammed Gensler for not providing guidance on what is deemed a security, that he is corrupt, and also highlighting Gensler’s lack of answer on whether Ethereum (ETH) is a security.
In the 2018 video, Gensler is quoted as stating that “three-quarters of the market is non-securities. It’s just a commodity. A cash crypto.”
Another Twitter user, @MsCryptomum1, tweeted “Is this you?” — referencing a different clip of Gensler’s lectures in 2018 which he states:
“I would note: In terms of market value, probably three quarters of this space is already been determined by the Securities and Exchange Commission not to be a security. Bitcoin’s 54%, Ether’s about 15 points or something.”
Gensler himself taught a course on blockchain technology at MIT, has a history of being pro-crypto, and previously expressed his belief that crypto could be the “catalyst for change” in the financial industry.
Coinbase seeks to force SEC on regulatory clarity
Brian Armstrong, the CEO of Coinbase, recently criticized U.S. crypto regulation after attempting to contact the SEC to discuss regulatory clarity — to no avail.
“The SEC is one where we’ve really struggled over the past few years.”
Armstrong explained that Coinbase had been asking the SEC for official compliance rules for some time — only to have a feedback meeting canceled the day prior, followed by the issuance of a Wells Notice to Coinbase the following week.
Coinbase has since filed an action against the SEC in its bid to force the regulatory entity to express a decision on Coinbase’s 2022 petition.
The petition requested the SEC to use its rulemaking process to develop guidance for companies in the crypto industry.