SEC chair: Cryptocurrencies will not be widely used as a means of payment

What’s new? Gary Gensler, the chairman of the US Securities and Exchange Commission (SEC), has said that cryptocurrencies are unlikely to ever be widely used as a means of payment and will continue to be seen predominantly as a means of saving. So the official, during a speech at New York University School of Law, responded to a question about what the value of cryptocurrency would be to users if it were to be fully included in the scope of regulation.

Material by CoinDesk

What else is known? The official emphasized that investors can independently decide whether there is a benefit from this or that cryptocurrency — provided that issuers disclose all related information. At the same time, Gensler praised his agency’s practice of enforcing regulation of industry companies through lawsuits: Sometimes we “need to bring the enforcement actions to bring people back to the right side of the line.”

Under Gensler’s leadership, the SEC has filed numerous lawsuits against crypto companies for violating securities laws, including leading centralized exchanges (CEXs) Coinbase, Binance, and Kraken, as well as fintech company Ripple, which issues the XRP token. In doing so, the agency declined to elaborate on a clearer regulatory framework, guidance for industry firms and criteria for which a particular cryptocurrency falls into one of two categories: security/commodity.

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Gensler added in a new statement that he sees no need for an additional regulatory framework beyond the Howey Test, which was approved by the Supreme Court in 1940. This test determines whether an asset is an investment contract and contains four items: investment of funds, common enterprise, reasonable expectation of profit, and the efforts of others.

In other words, an asset is recognized as a security if investors expect to receive income from a company (in this case, a token) managed by third parties.

The controversy has included whether cryptocurrencies meet the criterion of having a common enterprise. However, Gensler noted that issuing companies look to broker-dealers to bring the asset to market, the “logic that there’s no common enterprise at most.”

Gensler also reiterated his thesis that the industry is rife with fraud and scams, with the top players in the industry currently either already in jail or awaiting extradition for trial.

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Assessing the prospects for cryptocurrencies, Gensler quoted Gresham’s Law — “bad money drives out the good” — and added that countries generally want a single currency:

“You want one currency unit because it’s a store of value, a medium of exchange, a unit of account. It all has tremendous economics of networks. So it’s unlikely this stuff is going to be a currency. It’s going to have to show its value through disclosure, through use. ... The same way you pick amongst the thousands of securities that are listed on the stock exchange.”