How Taylor Swift and Gary Gensler find common ground on cryptocurrencies, and the reasons why Congress opposed their views

The question of whether digital assets should be regulated as securities remains unanswered, despite Taylor Swift’s interest in the matter. Swift concluded that they should be regulated as such, which influenced her decision to turn down an endorsement deal with FTX, a failed crypto exchange. The issue took center stage at the House Financial Services Committee hearing on Tuesday, with Chair Patrick McHenry repeatedly asking Securities and Exchange Commission Chair Gary Gensler whether ether is a commodity or a security. Gensler refused to classify it as either, frustrating McHenry.

For years, industry stakeholders and members of Congress have been urging the SEC to provide clarity on which cryptocurrencies are securities. However, Tuesday’s hearing only added to the confusion. The day before testifying, Gensler released a public statement that “the crypto markets suffer from a lack of regulatory compliance, not a lack of regulatory clarity.” Despite this statement, Gensler was unable to say whether ether, the second-largest cryptocurrency by market cap, is a security.

The SEC recently sued Bittrex Inc., a crypto exchange, for selling digital assets that the agency considers to be unregistered securities. Algorand’s token ALGO, which was developed by engineers at the Massachusetts Institute of Technology and has been used by governments from Singapore to Italy, was among the tokens included. Gensler praised Algorand and its lead developer, Silvio Micali, at a fintech conference in 2019. However, the SEC’s recent lawsuit against Algorand’s developers calls into question Gensler’s past statements.

This may be part of a power struggle between two regulatory bodies. Commodity Futures Trading Commission Chair Rostin Behnam believes that tokens like ether and litecoin, as well as stablecoins like USDC and Tether, are commodities and should thus fall under the CFTC’s purview, not the SEC’s. The conflicting messages from the two regulatory bodies leave crypto firms in a state of regulatory limbo.

The regulation-by-enforcement approach adopted by federal agencies has inspired entrepreneurs like Coinbase CEO Brian Armstrong to consider taking their blockchain businesses offshore. Only Congress can save the crypto industry from the overreach of federal regulators at this point. Blockchain allies in the House and Senate, including Democratic Senator Kirsten Gillibrand and Republican House Majority Whip Tom Emmer, are determined to set clear and innovation-friendly rules for this new asset class.

Representative Warren Davidson introduced a bill on Thursday that would remove Gensler as SEC Chair. Although messaging bills have little hope of passing, they are effective at making a splash in Washington to get a point across. The point here is that members of Congress will no longer be backseat drivers to the SEC in setting crypto policy. Whether they can take the wheel and steer the industry to a safer destination will depend on their ability to get buy-in from lawmakers on both sides of the aisle.