Gary Gensler’s Take on Crypto Doesn’t Matter

Securities law has been a main conversation topic for the crypto intelligentsia and unintelligentsia since New York magazine published an interview with Gary Gensler, where Intelligencer author Ankush Khardori drilled the top U.S. securities regulator late last week about his meeting with Sam Bankman-Fried.

There are many threads to pull here, including an important philosophical point about securities law.

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In the interview, Gensler suggested that all cryptocurrencies other than bitcoin are securities. The direct quote was: “Everything other than bitcoin, you can find a website, you can find a group of entrepreneurs, they might set up their legal entities in a tax haven offshore, they might have a foundation, they might lawyer it up to try to arbitrage and make it hard jurisdictionally or so forth.”

As many crypto lawyers have said, U.S. Securities and Exchange Commission Chair Gary Gensler does not determine the law or how it is applied. That’s the job of the courts. His input obviously matters, but his word is not law (here is a good Twitter thread from attorney Logan Bolinger on this point).

No one should be surprised by Gensler's statements. In fact, he has already said that he views bitcoin as a commodity and all other cryptocurrencies as probably securities. If direct quotes from CNBC interviews aren’t enough for you, then consider cryptocurrency exchange Kraken’s recent SEC settlement and shuttering of staking services for U.S. clients as additional proof.

Nevertheless, Gensler’s reiteration of “bitcoin is a commodity; cryptocurrencies are securities” has been cause for celebration in the corner of the internet where a certain breed of Bitcoin maximalist lives. (I should know, I spend a lot of time there.) These self-described toxic maximalists celebrate bitcoin’s special status as a nonsecurity and other cryptocurrencies' unspecial status as securities.

Never mind how odd it might seem that bitcoiners are celebrating regulation, it’s more useful to think about whether regulation even matters. I’ve written before that “... it doesn’t matter whether bitcoin, ether, SOL, dogecoin or AVAX are deemed securities,” and I still believe that. What actually matters is the SEC’s mandate to enforce laws against market manipulation to protect investors is a valiant purpose, and contending that market manipulation only matters in the context of securities is exactly wrong.

Who cares if bitcoin is a commodity, security or a pet rock?

The answer is: A lot of people. But the right answer is: No one should.

Bitcoin market manipulation should be stomped out too, it’s not just a nonbitcoin crypto problem. It’s not like commodities are immune from market manipulation or anything like that (just ask gold and silver). Practically, from the perspective of a lawyer, trader or entrepreneur, it might matter if Gensler stands up and contends that some asset is a security.

But the broader point is that nothing would change about what that asset fundamentally is whether he calls it a security or not. It would just mean that a different U.S. regulatory body might have some jurisdictional claim over that asset.

We shouldn’t ask: “Is XYZ a security?” We should instead ask: “How much does securities law and regulation matter if XYZ is borderless, decentralized and censorship resistant?”