Thursday is the deadline for the approval or denial of the first spot ether exchange-traded fund, and while SEC Chairman Gary Gensler has not commented on how the agency will proceed, he said the regulator will “follow the law.” Right now, there are at least nine applications for spot ether ETFs in front of the U.S. Securities and Exchange Commission. VanEck’s ether ETF is first in line, with a deadline of May 23. In a discussion Thursday morning with Investment Company Institute president Eric Pan at the ICI Leadership Summit, Gensler said the SEC was “deeply committed to following the law.” He noted that when the U.S. Court of Appeals for the D.C. Circuit ruled against the SEC’s denial of spot bitcoin ETFs, the regulatory agency “pivoted” and approved those funds in January. Gensler took aim at recent crypto legislation that had just passed the House of Representatives. The Financial Innovation and Technology for the 21st Century Act , known as FIT 21, passed in the House Wednesday afternoon by a vote of 279-136, with 71 Democrats voting in favor. The bill sets up a regulatory framework for crypto assets. It would give the SEC oversight of “restricted digital assets” while the Commodity Futures Trading Commission would be given a more prominent role to regulate “digital commodities” and their derivatives. President Joe Biden’s administration opposed passage of the bill, saying it lacked sufficient protections for investors, though he stopped short of saying he would veto it. Gensler reiterated that he, too, was opposed to the bill in its current form. “It comes down to the rampant noncompliance with U.S. law, it comes down to the frauds and the scams. This is a field where some of the leading lights are now in jail or waiting to go to jail,” he told Pan. He also noted that crypto has a very limited use case. “There’s fifteen or twenty-thousand tokens in this field. They do not operate as a currency. Is anybody in this room using it to buy a cup of coffee at Starbucks?” he asked, noting that one of the only areas crypto is used as a medium of exchange is for illicit activities. Gensler: ‘Most’ cryptocurrencies are securities subject to SEC regulation The SEC chairman also continued to argue that “most” cryptocurrencies are securities, saying almost all involve an investment of money in a common enterprise with a reasonable expectation of profits, which is the Supreme Court test for an investment contract. Another prong of the definition of an investment contract is whether the digital assets are sufficiently “decentralized” — that is, whether the asset is not just dependent on a small group of people but is driven by a large community of users. Gensler said crypto assets — and exchanges in particular exchanges — do not meet this test: “This field is not decentralized. There are a number of very significant players in the middle of this market.” He said crypto exchanges are “operating in ways that are conflicted in ways that traditional exchanges [are not]. We’d never let a traditional exchange trade against their customers.” Addressing the asset managers attending the conference, Gensler urged them to carefully consider the “value proposition” and the business model that crypto offers. “Think about what’s really the value proposition of each of these,” he said. “You’re not getting the disclosures…for you as asset managers, to make an informed decision, you want data. And this field is not giving you the data.” Gensler says he is not against financial innovation The SEC chairman pushed back against the claim he was against financial innovation. “I truly believe that with refs on the field finance has been able to not just prosper but really take off, and it [regulation] promotes innovation,” Gensler said. “Some of the greatest innovation in U.S. history has been done by regulated registered companies,” he added.
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