The Blockchain Association, a prominent lobbyist group representing the U.S. cryptocurrency industry, has called for the recusal of U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler from overseeing the regulation of the crypto sector. The association argues that Gensler’s public statements indicate a lack of impartiality in approaching the industry’s issues.
The association’s statement, released as an open letter, comes in the wake of Coinbase, the largest U.S.-based cryptocurrency exchange, filing a notice of intent to seek the dismissal of the SEC’s lawsuit against the company. The lawsuit alleges that Coinbase operated its trading platform as an unregistered financial securities exchange and broker.
Jake Chervinsky, Chief Policy Officer of the Blockchain Association, expressed concerns about Gensler’s firm belief that all digital assets, except Bitcoin, should be classified as securities. Chervinsky stated in the letter, “His steadfast view… means that he cannot approach enforcement decisions with a fair and impartial mind.”
On June 6, the SEC filed a lawsuit against Coinbase, accusing the exchange of operating without proper registration. A day prior, the SEC filed similar charges against Binance.US. In response, Coinbase revealed in a filing that the SEC was well aware of the exchange’s digital asset operations during its public offering registration in April 2021. The filing also highlighted that six of the 12 cryptocurrencies labeled as securities by the SEC were already being traded on Coinbase when the agency reviewed the registration.
Coinbase further argued that the SEC’s evolving stance on its powers is legally untenable and infringes upon due process and the constitutional separation of powers. The SEC has taken a more stringent approach to enforcing regulations on crypto exchanges this year. It recently fined Kraken, a U.S. crypto exchange, $30 million for its crypto staking programs, citing the offering of unregistered securities. Additionally, Paxos Trust Company, the stablecoin-issuer affiliated with Binance, received a warning from the SEC about potential legal action, leading the company to halt the minting of the stablecoin as it was deemed an unregistered security.
Coinbase criticized the SEC’s choice to deploy punitive retroactive enforcement actions instead of pursuing notice-and-comment rulemaking to test its new views. The company argued that the SEC’s actions exceed its bounds and are unlawful, asserting that agency enforcement authority has limits.
While Gensler has garnered support from many Democrats for his actions against crypto exchanges, he has faced criticism from Republican congressman Warren Davidson. Davidson introduced a bill called the SEC Stabilization Act on June 13, aiming to restructure the agency and remove Gary Gensler as chair.
The ongoing conflict between the Blockchain Association, Coinbase, and the SEC underscores the challenges and debates surrounding regulatory oversight in the rapidly evolving cryptocurrency industry. The outcome of these disputes will likely have far-reaching implications for the future of crypto regulation in the United States.
