In a statement released on Wednesday, Gary Gensler publicly voiced his opposition to the Financial Innovation and Technology for the 21st Century Act.
Gensler highlighted the potential consequences of the FIT21 bill, asserting that it “could lead to new regulatory loopholes and erode long-standing precedent regarding the supervision of investment contracts, posing immeasurable risks to investors and capital markets.”
The FIT21 bill, developed by the House Agriculture Committee and the House Financial Services Committee, seeks to clarify the SEC’s classification of cryptocurrencies by introducing the term “digital commodity” for digital assets.
Gensler’s Concerns
Gensler outlined seven major concerns with the bill, primarily emphasizing that it would remove investment contracts recorded on the blockchain from the protection of federal securities laws, thereby putting investors at risk.
The bill also suggests a process for crypto contracts to become “decentralized” and fall outside the SEC’s jurisdiction, effectively eliminating any SEC involvement. It would allow companies to self-certify that they’re issuing “digital commodities,” giving the SEC only 60 days to approve if the asset meets the criteria for a digital commodity.
Gensler argues that the SEC requires more than 60 days to ensure proper oversight.
Gensler pointed out, “There are more than 16,000 crypto assets that currently exist. Considering the constraints on staff resources and the absence of new resources allocated by the bill, it seems highly unlikely that the SEC would be able to thoroughly review and contest more than a fraction of those assets.
He further argued that the bill would harm U.S. capital markets by enabling dubious investors and companies to bypass SEC oversight by claiming to be decentralized networks.
Gensler posed a critical question, “What if perpetrators of pump-and-dump schemes and penny stock pushers argue that they’re outside of securities laws by labeling themselves as crypto investment contracts or self-certifying that they are decentralized systems?”
The House of Representatives is set to vote on the bill later today.
Public Reactions
Alexander Grieve, government affairs lead at Paradigm, highlighted the potential significance of @garygensler’s lack of clarification regarding whether this statement represents his personal or official stance, or if it mirrors the actual viewpoint of the @SECGov commission (both past and present). He wondered, “Could this potentially involve plausible deniability?”
Matthew Graham, Managing Partner of Ryze Labs, echoed a similar sentiment, stating on X that the “SEC making this politically motivated decision on Ethereum ETF is a great outcome for the crypto industry. However, it’s worth noting that this further undermines SEC legitimacy. Now we know that Gensler is not just a hack, but a partisan hack.”
Congressman Wiley Nickel expressed some backing for the bill in a humorous manner, quipping, “Gary Gensler is right about one thing: our securities laws are 90 years old!”
Should FIT21 be approved later this week, it will proceed to the Senate for consideration and will not be enacted into law until the end of the year.
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