Senate Democrat Takes Firm Stance on Crypto in Gensler Hearing

Chairman of the Senate Banking Committee, Sherrod Brown, holds significant sway over the fate of crypto legislation in the U.S. He has been vocal in his criticism of the industry, aligning with Gary Gensler's vigorous approach to regulating crypto.

During a recent Senate hearing, Securities and Exchange Commission (SEC) Chair Gary Gensler, a seasoned figure from Wall Street, didn't mince words about the crypto sector, deeming it to exhibit some of the most egregious behavior he's encountered.

However, it was Senator Sherrod Brown of Ohio who delivered the most impactful statements regarding the industry, painting a broad swath of it as a perilous realm fraught with fraudulent activity. Brown, who chairs the Senate Banking Committee, holds significant influence over any potential legislation governing the crypto industry.

Brown pinpointed issues observed at FTX, highlighting a lack of transparency, conflicts of interest, and risky gambles with customer funds that were meant to be secure. He emphasized that FTX represented just the tip of the iceberg in terms of these problems.

The absence of support from Brown would likely obstruct the advancement of crucial bills related to stablecoins or a comprehensive framework for overseeing the U.S. crypto market. He commended Gensler's agency for its approach, even as the industry decries it as enforcement-driven regulation.

"I’m glad the SEC is using its tools to crack down on abuse and enforce the law," Brown affirmed.

At the oversight hearing, Gensler reiterated his deep skepticism regarding the sector, remarking, "I’ve never seen a field that's so rife with misconduct. It’s daunting."

Senator Cynthia Lummis of Wyoming, a steadfast advocate for the digital assets industry, pressed Gensler on the SEC’s accounting guidance. This bulletin, known as Staff Accounting Bulletin 121, advises public companies on the treatment of crypto assets on their balance sheets. Lummis contended that this could have significant capital implications for banks, potentially driving them away from crypto custody services.

Gensler explained the SEC's stance, underscoring that crypto assets, unlike traditional securities, pose challenges in terms of segregation. He emphasized that determining the capital treatment of these assets falls under the purview of bank regulators.

While Gensler's SEC is not entirely neglecting crypto regulation in favor of enforcement actions against platforms like Coinbase and Binance, the agency is actively pursuing rule proposals that directly impact digital assets. However, these often revolve around enforcing existing U.S. securities laws on established crypto businesses.

In Congress, there are ongoing efforts to draft specific regulatory frameworks tailored to the crypto industry. This contradicts Gensler's belief that current laws are adequate. Although some bills have passed the House Financial Services Committee and various senators have put forward alternative proposals, Brown has yet to signal his willingness to take them up.