Senators have called on SEC Chairman Gary Gensler to provide advice on cryptocurrency regulation

Chairman Gary Gensler of the Securities and Exchange Commission told lawmakers on Tuesday that Wall Street’s top regulator is working around the clock to develop a set of regulations to manage the volatile cryptocurrency markets while also balancing the interests of American inventors.

He told the Senate Banking Committee that he and his colleagues are working to safeguard investors by improving regulation of the hundreds of new digital assets and currencies that are being launched every day, while also keeping an eye on the more well-known bitcoin and ether markets, among other things.

In an interview with Sen. Catherine Cortez Masto, D-Nev., the SEC chairman acknowledged the magnitude of the job, saying the agency could need “a lot more people” to assess the 6,000 new digital “projects” and decide if they all qualify as securities under U.S. law.

Gensler said in prepared comments that, at the moment, “we just do not have adequate investor protection in crypto financing, issuance, trading, or lending.” The Wild West or the ancient world of ‘buyer beware’ that existed before the securities regulations were established are more appropriate analogies at this point, says the author.

Nonetheless, several legislators pressed Gensler to accelerate the process, claiming that unclear definitions and an uncertain marketplace not only encourage uncontrolled speculation, but also have the potential to impede innovation.

Senate Majority Leader Pat Toomey (R-Pa.), the committee’s leading member, questioned Gensler early in the hearing about whether stablecoins satisfy the definition of a security since investors do not necessarily anticipate such assets to generate a profit.

As a kind of cryptocurrency that is pegged one-to-one to the dollar or other conventional currencies, stablecoins tend to be less volatile than its counterparts in the asset class as a whole.

“My whole argument is that I believe we need clarification on this,” Toomey said. “I believe you should make this information publicly available…. Without first providing such clarification, we should definitely refrain from initiating enforcement action against someone.”

Toomey and his Republican colleagues, on the other hand, expressed concern about the SEC’s potential to stifle innovation in the absence of a publicly available set of guidelines, whereas Democrats tended to draw attention to the speculative risk they perceive to be rampant in the cryptocurrency market.