Key Insights:

• Gary Gensler said that crypto firms may be exempt from some securities laws.

• The SEC chair still considers most digital assets to be securities.

• Uncle Sam continues to drag its feet with crypto regulations.

Securities and Exchange Commission (SEC) chair Gary Gensler said that crypto companies might be exempt from certain securities laws in order to help them come into regulatory compliance.

His comments came during an interview on July 14 when he said, “We do have robust authorities from Congress to use our exemptive authorities that we can tailor.”

The staunchly anti-crypto SEC chair added that such an approach is used for asset-backed securities and equity offerings, according to Bloomberg. However, he repeated prior warnings that many companies are non-compliant and offering unregistered securities.

Security or Commodity?

Gensler considers most crypto assets to be securities. However, they have yet to be officially classified as such in the U.S. He has been in a tussle with the other major financial regulator, the Commodity Futures Trading Commission (CFTC), over control of the asset class.

A security is akin to a stock that involves a corporation and an investment contract, whereas a commodity is an asset without a company in control, such as gold. Cryptocurrencies are a grey area, but many are more closely aligned with the latter’s properties.

The SEC chair has invited crypto companies to reach out to the agency, saying that “there’s a potential path forward.” However, industry leaders have repeatedly complained that the SEC has not provided clear guidance for them to register.

The regulator has recently gone after several crypto companies, accusing them of conducting unregistered securities sales. The most high-profile case is with fintech firm Ripple over its XRP token, which is drawing to a conclusion. A win for the SEC could set a precedent and be devastating for the crypto industry.

America’s leading financial regulators and policymakers have procrastinated over crypto regulation. In March, the Biden administration issued an executive order on digital assets urging federal agencies to “play a leading role in international engagement and global governance of digital assets consistent with democratic values and U.S. global competitiveness.”

However, very little progress has been made since, and it is unlikely that there will be any crypto legislation this year. There is a fine line between a heavy-handed crypto crackdown, which several politicians and bankers are calling for, and fostering the innovation that could make the country a fintech hub, which is what the industry advocates want.