SEC’s Chairman Gensler Faces Congressional Grilling Over Crypto Oversight

In a highly anticipated Congressional hearing today, U.S. Securities and Commission (SEC) Chairman Gary Gensler and his fellow commissioners faced intense scrutiny over the agency’s handling of digital asset regulation.

For the first time since 2019, all five commissioners including Caroline Crenshaw, Hester Peirce, Jaime Lizárraga, and Mark Uyeda testified together before the House Financial Services Committee. The hearing laid bare the growing tension surrounding the SEC’s oversight of cryptocurrencies, which critics argue has become overreaching and legally ambiguous.

Committee Chairman Patrick McHenry, a Republican from North Carolina, wasted no time in setting the tone, calling out Gensler for what he sees as regulatory overreach. "Chair Gensler’s legacy will be defined by turning the once proud institution of the SEC into a rogue agency," McHenry said, accusing the SEC of enforcing regulations “often without adequate justification, economic analysis, or public engagement.” The SEC’s heavy-handed approach has targeted a broad range of U.S. crypto companies—from exchanges like Coinbase to decentralized finance (DeFi) platforms like Uniswap and NFT marketplaces such as OpenSea.

SEC Commissioner Hester Peirce, often called “Crypto Mom” for her industry-friendly stance, criticized her agency’s lack of clarity in defining what constitutes a security. “We’ve taken a legally imprecise view to mask the lack of regulatory clarity," Peirce stated. “By using imprecise language, we have been able to sort of suggest that the token itself is a security, apart from the investment contract, which has implications for secondary sales and who can list it. We’ve fallen down in our duty as a regulator.”

Gensler has consistently pointed to the Howey Test—a legal framework established by the U.S. Supreme Court that determines whether a transaction is an investment contract and should therefore be subject to U.S. securities laws—as the backbone of his regulatory approach. However, Representative Ritchie Torres (D-NY) took issue with Gensler’s interpretation of the test as applied to non-fungible tokens (NFTs). Torres called Gensler’s reading "idiosyncratic," noting that the SEC’s logic could turn "just about any collectible or any consumer good or any piece of art or any piece of music" into a security. "It’s so open-ended that it blurs the line between collectible and security, between art and security,” Torres remarked.

The resistance to Gensler’s approach isn’t limited to the crypto industry—lawmakers from both sides of the aisle have voiced frustrations. One of the most contentious issues is Staff Accounting Bulletin (SAB) 121, which mandates that custodians of digital assets treat them as liabilities on their balance sheets. This rule has drawn rare bipartisan pushback, with 33 Democrats joining Republicans in voting to repeal the policy, which critics argue imposes onerous capital requirements on banks looking to scale crypto businesses.

Ranking member Maxine Waters (D-CA) took a more measured tone, emphasizing the need for legislative action beyond the SEC’s purview. “Before the end of this year, I want us to strike a grand bargain on stablecoins and other long-overdue bills,” she said, signaling that Congress may finally make the move many in the industry have long awaited.

Amid the regulatory turmoil, crypto’s role in American politics has expanded dramatically. Both presidential candidates have acknowledged the importance of digital assets to the future of the U.S. economy, a stark contrast to the industry's once fringe status. This newfound political clout is exemplified by the rise of Fairshake, a super PAC bankrolled by top cryptocurrency companies including Ripple, Andreessen Horowitz, Coinbase and Jump Crypto. In the 2024 election cycle, it backed the winning candidate in 33 of the 35 House and Senate primary races it participated in, according to CNBC, with notable victories in states like Utah, California, and New York.