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Bitcoin and the Howey Test
House Financial Services Committee Chair Patrick McHenry, R-N.C., pressed Gensler on whether bitcoin should be classified as a security. Gensler clarified that bitcoin is not a security and does not meet the criteria outlined in the Howey Test. The Howey Test, established by a 1946 U.S. Supreme Court case, helps determine whether transactions qualify as investment contracts subject to securities laws.
At the start of the hearing, McHenry appeared to threaten Gensler with a subpoena, accusing him of not being transparent with Congress about his interactions with bankrupt crypto exchange FTX and its former CEO Sam Bankman-Fried. McHenry emphasized the need for the SEC to recognize Congress as a co-equal branch of government and adhere to its oversight duties.
Rep. Maxine Waters, D-Calif., supported Gensler in her opening remarks, expressing concerns about the potential impact of a government shutdown on the agency’s operations. Waters highlighted that the SEC has been implementing priorities that promote the interests of workers, investors, and small businesses.
Rep. Tom Emmer argued that Gensler’s actions were influenced by a desire to consolidate power. Emmer expressed concern that such an approach could hinder opportunities for ordinary Americans and jeopardize the country’s financial future.
During the hearing, Rep. Ritchie Torres queried Gensler on whether buying a tokenized Pokemon card on a blockchain-based digital exchange would be considered a security transaction. Torres sought clarification on whether such transactions should be subject to securities laws.
In addition, Gensler faced questions regarding the SEC’s delay in approving a spot bitcoin ETF. Lawmakers, including Nickel, urged Gensler to greenlight these products, citing a recent decision by Grayscale as a reason to do so. Gensler stated that the agency was still considering the matter.
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