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SEC Chairman Gary Gensler, speaking at NYU School of Law, expressed skepticism about the likelihood of bitcoin or other cryptocurrencies ever becoming widely used as a form of currency. Instead, Gensler suggested that these assets will continue to be viewed primarily as stores of value rather than mediums of exchange. He emphasized that the idea of a currency separate from government control faces historical and economic challenges. Gensler pointed out that, over thousands of years, societies have gravitated toward using a single currency within each nation, making it unlikely that multiple competing forms of digital currency will gain widespread acceptance.

Gensler referenced Gresham’s Law, a principle from the 19th century which states that “bad money drives out good money,” to support his argument that nations typically prefer one stable currency. He further explained that currencies function as a store of value, a medium of exchange, and a unit of account, all of which benefit from network effects. As such, cryptocurrencies would need to demonstrate their value through use and regulatory disclosures, much like securities listed on stock exchanges. Gensler believes cryptocurrencies will be judged by their utility and transparency rather than becoming universally accepted forms of money.

In discussing the SEC’s regulatory approach, Gensler defended the agency’s enforcement of crypto companies, emphasizing the need for “a cop on the beat” to ensure that financial laws are followed. He acknowledged that human nature often leads individuals in finance to test the limits of regulation, necessitating enforcement actions to prevent misconduct. Gensler’s remarks reflect the SEC’s aggressive stance against fraudulent and illegal activities in the cryptocurrency industry, which he described as plagued by fraudsters, grifters, and scams.

Highlighting the extent of criminal activity within the crypto space, Gensler remarked that many of the “leading lights” of the industry in 2024 are either incarcerated or facing extradition. This comment underscores the ongoing legal challenges facing high-profile figures within the crypto world. Gensler also downplayed the need for additional regulatory frameworks specific to cryptocurrencies, asserting that existing legal standards, like the Howey Test, are sufficient to determine whether a digital asset qualifies as a security.

The Howey Test, established by the Supreme Court in 1940, determines whether an asset constitutes an investment contract, and thus falls under securities regulation. Gensler noted that if there is a central enterprise engaging with law firms or brokers to market a cryptocurrency, it would likely meet the criteria of the Howey Test. His comments suggest that most cryptocurrencies would fall under this test and therefore require SEC oversight as securities.

When asked about the potential impact of the upcoming presidential election on the SEC’s regulatory approach, Gensler declined to comment. He refused to speculate on whether he would step down if former President Donald Trump were to win re-election. Gensler’s stance indicated a reluctance to engage in political speculation regarding his future at the agency.

Gensler’s remarks at NYU School of Law reflect his long-standing view that cryptocurrency, while innovative, is unlikely to replace traditional currencies. Instead, its success will depend on regulatory transparency and enforcement to protect investors from fraud and to ensure market integrity. His emphasis on using existing frameworks like the Howey Test reinforces his belief that no new legislation is needed to manage the risks posed by the cryptocurrency industry.

Overall, Gensler’s speech highlights the SEC’s continued focus on curbing fraud within the crypto space while maintaining that cryptocurrency’s role as a currency is unlikely to materialize. He affirmed that investor protection and transparency remain central to the SEC’s approach, ensuring that the public has the necessary information to make informed decisions about their investments.