US Securities and Exchange Commission (SEC) Chairman Gary Gensler faced backlash from the crypto community after he used a dog-goldfish analogy to explain the importance of security law compliance in a video tweet on 27 April.
In his analogy, Gensler said for crypto platforms to offer “investment contracts” and call them anything but would be like walking a dog off a leash and calling it a goldfish to avoid legal trouble.
He continued that security laws were essential to investor protection and that “cryptomarkets suffer from a lack of regulatory compliance; It is not a lack of clarity about the regulations.”
“Many crypto platforms pretend that these investment contracts they offer are more similar goldfish and the lack of compliance by these crypto platforms means you lack basic investor protection.
He further noted that many crypto platforms combine the operations of an exchange, broker-dealer, and clearinghouse into one, and failure to register these functions puts investors at risk.
It doesn’t matter if you call yourself onshore or offshore. If you make securities available to US investors, you must comply with US law. The law is clear. If you are a stock exchange, clearinghouse or broker-dealer, you must comply with the rules, register with us and deal with conflicts of interest and disclose important information.
While Gensler’s analogy could have been intended as a simple explanation of securities laws, it faced quick reactions from the crypto community.
Response from the crypto community
Critics in the tweet’s comments criticized Gensler for not giving advice on what is considered a security, that he is corrupt, and also to mark Gensler’s lack of answer to the question of whether Ethereum (ETH) is a security.
Twitter user @sirspacesape noticed to the tweet, posting a reaction video showing Gensler in 2018 – revealing Gensler’s conflicting view of crypto at the time.
The 2018 video quotes Gensler as stating that “three quarters of the market is non-securities. It’s just a commodity. A money crypto.”
Another Twitter user, @MsCryptomum1, tweeted “Is this you?” — referring to another excerpt from Gensler’s 2018 lectures in which he says:
“I would note: in terms of market value, probably three quarters of this space has already been determined by the Securities and Exchange Commission as no security. Bitcoin is 54%, Ether is about 15 points or something.”
Gensler himself taught a course on blockchain technology at MIT, has a history as a pro-crypto and previously expressed his belief that crypto could be the “catalyst for change” in the financial industry.
Coinbase is trying to force SEC to clarify regulatory issues
Coinbase CEO Brian Armstrong recently criticized US crypto regulation after attempting to contact the SEC to discuss regulatory clarity – to no avail.
“The SEC is one that we’ve really struggled with over the last few years.”
Armstrong explained that Coinbase had been asking the SEC for official compliance rules for some time — only to cancel a feedback meeting the day before, followed by the issuance of a Wells notice to Coinbase the following week.
Coinbase has since filed a lawsuit against the SEC to force the regulatory body to make a decision on Coinbase’s 2022 petition.
The petition requested that the SEC use its regulatory process to develop guidelines for companies in the crypto industry.
