SEC's Gensler Speaks Out on Crypto

Plus: Google's new crypto ad policy, Ethereum EIP 1559 eve and more |

What you need to know today in crypto and beyond  August 4, 2021 Sponsored by     Welcome to The Node.   If you were forwarded this newsletter and would like to receive it, sign up here.   Questions? Feedback? We'd love to hear from you! Simply reply to this email.   –Daniel Kuhn Today's must-reads Top Shelf GENSLER ON ICOS: SEC Chairman Gary Gensler said he believes the vast majority of crypto tokens and ICOs violate U.S. securities laws. In a speech on Tuesday, Genser said he agreed with Jay Clayton, his predecessor at the SEC, who said that in this view, "every ICO I've seen is a security." Gensler said that he believes crypto trading platforms might already have securities listed.   IN EFFECT: Google's new U.S. crypto ad policy kicks in today, allowing ads related to bitcoin and other cryptos, albeit with restrictions. Companies pitching crypto products and services must be registered with the U.S. Treasury's Financial Crimes Enforcement Network or a federal or state chartered banking regulator.   SPAIN: The leading opposition party in Spain has introduced a bill that would allow for the payment of mortgages with cryptocurrencies and create a national crypto assets council to analyze the implications of the use of crypto and blockchain in that country. According to the legislation, homeowners would be able to use cryptocurrencies to pay their mortgages, while the real estate sector would be able to use crypto to invest in mortgage pools.   EIP OVERRATED? Analysts are taking a cautious stance on ether and foresee little price reaction as the crypto community awaits the London hard fork on the Ethereum blockchain, scheduled for Aug. 5. One trader called the upgrade "overrated" and said "what matters is what happens after." Ethereum is home to an ecosystem of financial and social experiments, including decentralized autonomous organizations – the top 20 of which have cracked a market valuation of $6 billion, according to ConsenSys data.   –Helene Braun A message from Nexo Your digital assets deserve a savings account in their BEST INTEREST. 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The global hashrate has largely shifted to North America, making the U.S. a key mining hub where institutions now take central stage.   In this sponsored webinar on Aug. 10, Foundry CEO Mike Coyler explains how this new demographic of miners has special requirements that the company has been catering to through its rapidly growing Foundry USA Pool and other services. Register for free. What others are writing... Off-Chain Signals How bitcoin impacted Tesla, MicroStrategy and Square's Q2 earnings (Protos) Coinbase survey shows majority of U.K. citizens are interested in crypto-backed loans (Decrypt) Mistake sees $69,000 CryptoPunk sold for less than a cent (The Block) The Cryptocurrency Surveillance Provision Buried in the Infrastructure Bill is a Disaster for Digital Privacy (EFF)   –H.B. A message from Celsius     Put your crypto to work and earn on your coins, paid out every Monday. No minimum balances. No fees. Start using Celsius and get $50 in BTC with promo code HODL50*. *Promo Codes valid for first transfers only. T&Cs: celsius.network/promotion-rules Putting the news in perspective The Takeaway Gary Gensler's Mixed Reviews SEC head Gary Gensler signaled Tuesday that the agency would aggressively regulate cryptocurrency markets using existing rules. That sounds scary, but markets have barely blinked – bitcoin even ticked up slightly this morning. Responses from some industry leaders and analysts were accepting, and even positive.   That's surprising in an industry used to fending off harmful regulation, and more than anything reflects faith in Gensler's deep knowledge of both the promise and technical underpinnings of blockchain and cryptocurrencies. Gensler affirmed on CNBC this morning that he is "pro innovation," and broadly, it seems a lot of crypto types actually believe him.   Gensler's comments were delivered at the Aspen Security Forum yesterday. The prepared statement can be read in full here.   Among other points, Gensler reiterated the enduring importance of the Howey Test: If a financial instrument promises returns from the efforts of others, it's a security and can be regulated by the SEC. "I believe we have a crypto market now where many tokens may be unregistered securities," Gensler said. This was most pointedly a reference to initial coin offerings, or ICOs, a fundraising process in which founders sell tokens to investors before building a system. They have been rife with fraud as unethical operators stand up fake or deceptive "projects" and sell tokens for them.   File that one under "dog bites man" – there have been dozens of prosecutions of individual token issuers on those exact grounds. And while there are still plenty of operators clinging to the idea that "decentralization" makes it okay to issue unregulated securities, their numbers have dwindled.   The takeaway for some was that Gensler would target deceptive "sh*tcoins," a likely net positive for the industry. One of the more surprising expressions of approval came from Bruce Fenton, founder of the strongly libertarian Satoshi Roundtable, who wrote this morning that "we need securities markets to work right and help capital formation and building businesses and jobs."   That sort of openness speaks volumes about the unique degree of respect Gensler enjoys from crypto leaders thanks to his track record as head of the CFTC following the financial crisis and his three years as a professor at MIT, where he taught classes on blockchain topics. Crypto consultant Jeff Bandman summed up the consensus when he wrote of Gensler in January that, "He has clearly devoted himself immersively to understanding the space on many levels." It's unclear, though, whether Gensler can shift the SEC's slow-moving, whack-a-mole approach on ICOs towards something more systematic and consistent.   Michael Saylor, CEO of software firm/bitcoin holding entity MicroStrategy, declared that, "Regulatory clarity will benefit #Bitcoin." That's certainly talking his own book, but Saylor has a leg to stand on: Bitcoin, thanks to its absent creator and its basically fair launch, has the single best claim in crypto to avoid classification as a security.   Gensler himself appeared to draw a moat around Bitcoin in the remarks, saying that after his time researching cryptocurrency at MIT, "I came to believe that, though there was a lot of hype masquerading as reality in the crypto field, [Satoshi] Nakamoto's innovation is real. Further, it has been and could continue to be a catalyst for change in the fields of finance and money."   On CNBC today, Gensler even went so far as to retell Bitcoin's origin story and conclude "that part of it is okay" – strongly signaling he does not consider bitcoin a security. Gensler has also laid out a pathway to a long-dreamed-of Bitcoin ETF.   There was plenty to set other segments of the industry on edge, though. Gensler said that "stablecoins may also be securities," a claim critics have questioned in part because it's hard to see how a coin explicitly intended to not change in price can entail the expectation of profit.   Gensler also signaled real headwinds for exchanges like Coinbase: Many are not licensed as securities brokers, but Gensler seems to think they should be. "The probability is quite remote that, with 50 or 100 tokens, any given [crypto exchange] platform has zero securities," he said.   Love it or hate it, the consensus is that Gensler's speech has broad implications. Nic Carter, a CoinDesk columnist, described it as "catalytic" and "a significant show of intent" for the SEC.   Coming from another regulator that could have meant panic. Take for comparison the crypto-taxation fiasco still working its way towards resolution in the U.S. legislature. A few lines of poorly crafted language threatened to completely disrupt the sector by imposing technologically impossible reporting requirements, and lobbyists had to spring into action to try and push things in the right direction. A lot is riding on the belief that Gensler is smart enough to avoid similar destructive screwups.   –David Z. Morris Sponsored Content   Timecoin: Decentralized esports: the future of gaming Under Web 2.0, esports are centralized through large corporations controlling the platforms, the games and even the tournaments. Through decentralization, that power can revert to the players, both amateur and professional, which in turn could allow the industry to grow exponentially. Crypto State 2021: Middle East Even though many countries in the Middle East restrict or outright ban activities related to blockchain technology, the region is having its crypto moment. From Dubai's first-of-its-kind Bitcoin Fund listing to the Bank of Israel's trial of a digital shekel, interest is picking up in the region as crypto companies work closely with regulators in the Middle East and North Africa (MENA) to gain some clarity about oversight of digital currencies.   Join us as we jet-set through the Middle East on our #CryptoState2021 virtual tour and explore how different markets are thinking about crypto, their roadblocks and challenges, and crypto's impact on the region. Register for the Crypto State: Middle East virtual tour on Aug. 11. The Chaser... The Node A newsletter from CoinDesk See Previous Editions Copyright © 2021 CoinDesk, All rights reserved.  250 Park Avenue South New York, NY 10003, USA You can manage your preferences here or unsubscribe from all CoinDesk email.