SEC's Gensler Speaks Out on Crypto
  What you need to know today in crypto and beyond August 4, 2021 Sponsored by  Welcome to The Node.
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Today's must-reads Top Shelf  GENSLER ON ICOS: SEC Chairman Gary Gensler said he believes the vast majority of crypto tokens and ICOs violate U.S. securities laws. In a speech on Tuesday, Genser said he agreed with Jay Clayton, his predecessor at the SEC, who said that in this view, "every ICO I've seen is a security." Gensler said that he believes crypto trading platforms might already have securities listed.
IN EFFECT: Google's new U.S. crypto ad policy kicks in today, allowing ads related to bitcoin and other cryptos, albeit with restrictions. Companies pitching crypto products and services must be registered with the U.S. Treasury's Financial Crimes Enforcement Network or a federal or state chartered banking regulator.
SPAIN: The leading opposition party in Spain has introduced a bill that would allow for the payment of mortgages with cryptocurrencies and create a national crypto assets council to analyze the implications of the use of crypto and blockchain in that country. According to the legislation, homeowners would be able to use cryptocurrencies to pay their mortgages, while the real estate sector would be able to use crypto to invest in mortgage pools.
EIP OVERRATED? Analysts are taking a cautious stance on ether and foresee little price reaction as the crypto community awaits the London hard fork on the Ethereum blockchain, scheduled for Aug. 5. One trader called the upgrade "overrated" and said "what matters is what happens after." Ethereum is home to an ecosystem of financial and social experiments, including decentralized autonomous organizations – the top 20 of which have cracked a market valuation of $6 billion, according to ConsenSys data.
–Helene Braun
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Putting the news in perspective The Takeaway  Gary Gensler's Mixed Reviews SEC head Gary Gensler signaled Tuesday that the agency would aggressively regulate cryptocurrency markets using existing rules. That sounds scary, but markets have barely blinked – bitcoin even ticked up slightly this morning. Responses from some industry leaders and analysts were accepting, and even positive.
That's surprising in an industry used to fending off harmful regulation, and more than anything reflects faith in Gensler's deep knowledge of both the promise and technical underpinnings of blockchain and cryptocurrencies. Gensler affirmed on CNBC this morning that he is "pro innovation," and broadly, it seems a lot of crypto types actually believe him.
Gensler's comments were delivered at the Aspen Security Forum yesterday. The prepared statement can be read in full here.
Among other points, Gensler reiterated the enduring importance of the Howey Test: If a financial instrument promises returns from the efforts of others, it's a security and can be regulated by the SEC. "I believe we have a crypto market now where many tokens may be unregistered securities," Gensler said. This was most pointedly a reference to initial coin offerings, or ICOs, a fundraising process in which founders sell tokens to investors before building a system. They have been rife with fraud as unethical operators stand up fake or deceptive "projects" and sell tokens for them.
File that one under "dog bites man" – there have been dozens of prosecutions of individual token issuers on those exact grounds. And while there are still plenty of operators clinging to the idea that "decentralization" makes it okay to issue unregulated securities, their numbers have dwindled.
The takeaway for some was that Gensler would target deceptive "sh*tcoins," a likely net positive for the industry. One of the more surprising expressions of approval came from Bruce Fenton, founder of the strongly libertarian Satoshi Roundtable, who wrote this morning that "we need securities markets to work right and help capital formation and building businesses and jobs."
That sort of openness speaks volumes about the unique degree of respect Gensler enjoys from crypto leaders thanks to his track record as head of the CFTC following the financial crisis and his three years as a professor at MIT, where he taught classes on blockchain topics. Crypto consultant Jeff Bandman summed up the consensus when he wrote of Gensler in January that, "He has clearly devoted himself immersively to understanding the space on many levels." It's unclear, though, whether Gensler can shift the SEC's slow-moving, whack-a-mole approach on ICOs towards something more systematic and consistent.
Michael Saylor, CEO of software firm/bitcoin holding entity MicroStrategy, declared that, "Regulatory clarity will benefit #Bitcoin." That's certainly talking his own book, but Saylor has a leg to stand on: Bitcoin, thanks to its absent creator and its basically fair launch, has the single best claim in crypto to avoid classification as a security.
Gensler himself appeared to draw a moat around Bitcoin in the remarks, saying that after his time researching cryptocurrency at MIT, "I came to believe that, though there was a lot of hype masquerading as reality in the crypto field, [Satoshi] Nakamoto's innovation is real. Further, it has been and could continue to be a catalyst for change in the fields of finance and money."
On CNBC today, Gensler even went so far as to retell Bitcoin's origin story and conclude "that part of it is okay" – strongly signaling he does not consider bitcoin a security. Gensler has also laid out a pathway to a long-dreamed-of Bitcoin ETF.
There was plenty to set other segments of the industry on edge, though. Gensler said that "stablecoins may also be securities," a claim critics have questioned in part because it's hard to see how a coin explicitly intended to not change in price can entail the expectation of profit.
Gensler also signaled real headwinds for exchanges like Coinbase: Many are not licensed as securities brokers, but Gensler seems to think they should be. "The probability is quite remote that, with 50 or 100 tokens, any given [crypto exchange] platform has zero securities," he said.
Love it or hate it, the consensus is that Gensler's speech has broad implications. Nic Carter, a CoinDesk columnist, described it as "catalytic" and "a significant show of intent" for the SEC.
Coming from another regulator that could have meant panic. Take for comparison the crypto-taxation fiasco still working its way towards resolution in the U.S. legislature. A few lines of poorly crafted language threatened to completely disrupt the sector by imposing technologically impossible reporting requirements, and lobbyists had to spring into action to try and push things in the right direction. A lot is riding on the belief that Gensler is smart enough to avoid similar destructive screwups.
–David Z. Morris
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 Crypto State 2021: Middle East Even though many countries in the Middle East restrict or outright ban activities related to blockchain technology, the region is having its crypto moment. From Dubai's first-of-its-kind Bitcoin Fund listing to the Bank of Israel's trial of a digital shekel, interest is picking up in the region as crypto companies work closely with regulators in the Middle East and North Africa (MENA) to gain some clarity about oversight of digital currencies.
Join us as we jet-set through the Middle East on our #CryptoState2021 virtual tour and explore how different markets are thinking about crypto, their roadblocks and challenges, and crypto's impact on the region. Register for the Crypto State: Middle East virtual tour on Aug. 11.
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