US Senate building

Former Commodity Futures Trading Commission chair questions legality of two big cryptocurrencies

Gary Gensler reckons two of the biggest cryptocurrencies at present could fall foul of SEC guidelines on unregulated securities. 

The New York Times is reporting the opinion of Gary Gensler – one of the Obama administration’s top economic regulators, the finance chief for Hillary Clinton’s 2016 presidential campaign, and a former partner at Goldman Sachs – that two of the most widely used cryptocurrencies, Ethereum (ETH) and Ripple (XRP), are likely to be in breach of the US Securities and Exchange Commission’s (SEC) rules on unregulated securities.

“There is a strong case for both of them — but particularly Ripple — that they are noncompliant securities,” he said in an interview. In contrast, he believes Bitcoin is probably exempt from SEC scrutiny because it was not originally issued through an Initial Coin Offering, nor was it the product of one centralised entity, with its codes overseen by a centralised team of devs.

Ethereum and Ripple, despite their protestations, both seem to be the antithesis of Bitcoin’s original roll-out – with their creators looking to exert closer control over the supply and workings of their currency in order to solve some of the problems that emerged with the Bitcoin ecosystem.

The Ethereum Foundation has taken significant steps to separate itself from the currency of late, not least by decentralising its development and surrendering its supply of the currency. Aya Miyaguchi, its head, told the NYT that it “neither controls the supply of nor has the ability to issue Ether, and the quantity of Ether that the foundation holds (under 1 percent of all Ether) is already lower than that held by many other ecosystem participants.”

Ripple (the company), however, has long courted controversy by holding large reserves of Ripple (the currency – XRP) and has long been suspected of falling foul of the Howey Test. Despite this, Tom Channick, a spokesperson for Ripple (the company) responded: “XRP does not give its owners an interest or stake in Ripple, and they are not paid dividends,” he said. “XRP exists independent of Ripple, was created before the company and will exist after it.”

Gensler led the Commodity Futures Trading Commission between 2009 to 2014 – that, alongside the SEC – is the other major influencing force active in determining policy for cryptocurrency and Initial Coin Offerings at present. The focus of SEC, and State-level, ire recently has been smaller offerings. Should two of the sectors biggest names – and market capitalisations – fall foul of regulators, that would have serious knock-on effects for many other cryptos, and those who have invested in them. It could, for example, become illegal for Americans to trade in them – considerably knocking their prices and prospects.

“2018 is going to be a very interesting time,” Mr. Gensler said. “Over 1,000 previously issued initial coin offerings, and over 100 exchanges that offer I.C.O.s, are going to need to sort out how to come into compliance with U.S. securities law.”

Apparently so.

New York Times