Gary Gensler: cryptocurrencies under the Securities Act

The huge fine imposed on BlockFi by the SEC prompts some reflection on how the head of the authority, Gary Gensler, sees cryptocurrencies: they must be subject to the Securities Act, as if they were securities. 

Cryptocurrencies must comply with the Securities Act, as if they were securities

In the press release announcing the fine given to BlockFi, Gary Gensler commented: 

“This is the first case of its kind with respect to crypto lending platforms. Today’s settlement makes clear that crypto markets must comply with time-tested securities laws, such as the Securities Act of 1933 and the Investment Company Act of 1940. It further demonstrates the Commission’s willingness to work with crypto platforms to determine how they can come into compliance with those laws. I’d like to thank and commend our remarkable SEC staff and state regulators for their efforts and collaboration on this settlement”.

BlockFi was fined $100 million because it offered a crypto lending instrument that did not comply with the imposed rules. The instrument was considered a security and BlockFi was not registered to offer securities. 

Gary Gensler’s words confirm what has been said before: some crypto (and in some cases also some products) do qualify as securities. 

Finance is trust: the position of the SEC chairman

In an interview with MarketWatch, the SEC chairman reiterated his thoughts: 

“Finance is ultimately about trust. And the official sector has a role to help instill that trust through a set of rules on disclosure, anti-fraud and anti-manipulation”.

According to Gary Gensler, between 90 and 95% of crypto lending and trading takes place on platforms such as BlockFi, i.e. platforms that are not registered and therefore operate far from the rules of the market. Therefore, he adds: 

“That activity, centralized on those platforms, they need the investor protection, the market integrity and anti-manipulation. I think the problem is, right now, the public isn’t well protected and there’s a lot of folks who are going to get hurt”.

Exchanges need to be careful

That’s why the SEC chairman is calling on all exchanges to be careful, because the SEC will continue to go after platforms that don’t comply with the law. 

The point is that if the SEC chairman considers some cryptocurrencies to be securities, then automatically all exchanges that list those cryptocurrencies are selling securities, and potentially in ways that don’t comply with the law. 

Probably the first step to take is to establish what is a security and what is not, and on this, there is still much confusion on the part of the authority itself, which seems to have established, at present, that only BTC is not a security. This scenario will be defined by the ruling in the case between the SEC and Ripple, which will probably mark a turning point in the history of the sector.