McHenry clashes with SEC's Gensler over crypto crackdown

House Republicans ripped into SEC Chair Gary Gensler at his first oversight hearing in 18 months, claiming his crackdown on cryptocurrency has failed to bring stability to digital asset markets.

“Your approach is driving innovation overseas and endangering American competitiveness,” Financial Services Chair Patrick McHenry (R-N.C.) said Tuesday.

Cryptocurrency lobbyists have been pushing lawmakers for months to take a more aggressive tack with Gensler, who has significantly dialed up SEC enforcement since last year's spectacular collapse of the FTX exchange, setting its sights on some of the biggest companies like Coinbase.

Gensler has long argued that much of the lightly regulated $1 trillion market violates U.S. securities rules because many of the products consist of unregistered securities.

Gensler, an ally of top progressives like Senate Banking Chair Sherrod Brown (D-Ohio) and Sen. Elizabeth Warren (D-Mass.), has been on a collision course with McHenry since the GOP took control of the House in January. The veteran regulator's turbocharged rulemaking agenda includes planned overhauls of the private equity industry and stock market trading, along with a sweeping climate change proposal that Republicans have battered with claims of government overreach.

But much of the fireworks Tuesday focused on crypto. McHenry – along with other Republicans like Reps. French Hill of Arkansas and Bill Huizenga of Michigan – attacked Gensler over his approach to regulation. They said he was focused too much on enforcement and not enough on providing clarity for the industry. They also blasted the SEC chair for stonewalling their efforts to investigate his response to the FTX failure.

In one contentious exchange, McHenry challenged Gensler to explain whether Ether — the second-largest crypto token after Bitcoin — is a security, while hinting at a potential turf war between the SEC and another regulator, the Commodity Futures Trading Commission. CFTC Chair Rostin Behnam, whose agency oversees derivatives products, has said that Ether falls under the CFTC’s jurisdiction.

“Do you think it serves the market for an object to be viewed by the commodities regulators as a commodity and the securities regulator to be viewed as a security? Do you think that provides safety and soundness for the products?” McHenry asked Gensler, who led the CFTC during the Obama administration. “I think `no' should be a very simple answer for you here.”

But Gensler declined, citing a longstanding precedent for SEC officials to not comment on the “facts and circumstances” of specific cases. Instead, he offered a high-level response explaining the SEC’s test for determining whether an asset is a security.

The SEC chair called on exchanges, brokers and issuers to comply with the same rules that Wall Street follows.

“It’s not a matter of a lack of clarity,” Gensler said. “This is a field that in the main is built up around non-compliance.”

Democrats, led by ranking member Maxine Waters (D-Calif.), defended Gensler’s digital asset strategy. Waters argued that his approach marked a “stark difference” from that of previous SEC officials.