Chairman McHenry (R-NC) begins, and launches right in on the topic of digital assets. Accuses Gensler of "refus[ing] to provide clarity" on digital assets and how they fall under securities regulations, and "regulating by enforcement".

McHenry also says that Gensler's leadership of the SEC is "driving innovation overseas and endangering American competitiveness".
He accuses Gensler of doing too much regulation, introducing too many rules.

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One theme to look out for today will be crypto advocates such as McHenry on the one hand criticizing Gensler for doing too much regulation ("stifling innovation"), while on the other accusing him of not doing enough (with respect to FTX).

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Rep. Waters (D-CA) is up now. She's annoyed that the hearing is (in her view) motivated by Republicans' promises to "do a big number" on Gensler and the SEC, rather than focusing on issues she feels are more important (debt crisis, banking collapses, etc.)

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Rep. Wagner (R-MO) up now, giving her part of the Republican view that the Gensler and the SEC haven't been sufficiently responsive to Congressional inquiries, and is causing "death by a thousand cuts" to US capital markets.

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Rep. Sherman (D-CA) joins Waters in thanking Gensler for his work thus far, and for showing strong action against "crypto bros". Sherman is possibly the most outspoken crypto critic on the floor. This is likely to be fairly split among party lines, though there are exceptions.

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SEC Chairman Gary Gensler's turn. His written testimony is here: https://docs.house.gov/meetings/BA/BA00/20230418/115751/HHRG-118-BA00-Wstate-GenslerG-20230418.pdf

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Gensler says he thinks the most transformative innovations will be in AI, not in crypto. Talks about roboadvisers...

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Rep McHenry (R-NC) launches right in, asking about disagreement among regulators over whether ether is a security or a commodity. States that assets cannot be both securities and commodities. Gensler corrects McHenry that securities are commodities, but excluded commodities.

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McHenry is demanding Gensler express his view on whether ETH is a security or a commodity. Gensler won't give a specific answer on ETH, wants only to provide his view on the general regime, wanting to avoid to pre-judge. McHenry accuses him of prejudging in the case of Bitcoin.

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Waters asks if Gensler believes the SEC has the authority necessary to oversee the crypto industry, or if he agrees with the crypto industry line that they need a NEW regulatory framework. Gensler says that he believes they have the authority they need.

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"I've never seen a field that's so non-compliant with laws" in his 40 years, says Gensler. "This is an unfortunately, for the investing public, non-compliant field."

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Hill (R-AR) asks if Gensler supports Congress drafting a regulatory framework for stablecoins. Gensler says yes, if Congress were to ensure they addressed safety and soundness without undermining capital markets, and without undermining SEC's and CFTC's ability to go after fraud.

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Hill asked several other questions about the Consolidated Audit Trail, treasury regulations, etc. I won't cover the non-crypto conversations in as much detail since I'm less familiar with the background.

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Velázquez (D-NY) is asking about bank collapses, asking what the SEC has done with regards to Dodd-Frank, insider stock trading around the time of bank collapses.

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Rep. Sessions (R-TX) is challenging Gensler on his statement that "my views are my own" at the beginning of the hearing. Gensler is required to say that.

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Rep. Sherman (D-CA) is pushing for legislation that would find that all intangible investment assets (including crypto) are securities, which would remove the token-by-token battles we're seeing.

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Sherman is also pushing for a redefinition of "accredited investor" that isn't based on an individual's wealth, but rather on that individual's knowledge, and would limit how much of their assets they could put into one basket.

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Rep. Lynch (D-MA): "My friends on the other side of the aisle seem to be bemoaning a lack of regulatory clarity, but then in the same breath criticize the SEC's rulemaking efforts that arguably would provide that clarity they desire."

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Lynch cites large corpus of SEC decisions and guidance around things like crypto risk to banking industry. "There's a fair amount of guidance out there, and clarity, it's just not the clarity that the crypto industry wants."

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Gensler: "It's not a matter of a lack of clarity. I think [crypto] is a field that, in the main, has built up around non-compliance and that's their business model. They have chosen, even though it's not the law, to be non-compliant."

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Rep. Posey (R-FL) asks if Gensler had concerns about FTX prior to the collapse. Gensler says he's had a general concern about the field, its general non-compliance, and commingling of exchange vs. trading functions.

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Posey is asking Gensler about the time frame in which SEC investigations are announced. Gensler says that investigations are kept private until charges or settlement to try to protect the integrity of the investigation and the privacy of those involved. Posey: "Sad to hear that."

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Rep. Cleaver (D-MO) is making a reference to Blazing Saddles ("should have won an Academy Award") as he talks about the debt ceiling. References the scene where Bart is surrounded by people trying to lynch him and threatens to shoot himself. Asks if that's what Congress is doing.

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Rep. Luetkemeyer (R-MO) is concerned that "somebody could play some funny games" by kicking off panic on social media (as happened with SVB) to profit from short selling. Gensler says that short selling is legal and protected, but that the SEC guards against manipulation.

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Rep. Huizenga (R-MI) is admonishing Gensler for responding to Congressional information requests with only publicly available information (on climate issues and on FTX).

Huizenga wants documents from the SEC about the timing of charges against Sam Bankman-Fried. Gensler says they're obligated to keep investigative documents confidential. Huizenga: "Don't hide behind the DOJ!"

After Huizenga's time expires, McHenry adds, "A response to our questions would appropriate".

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With some extra time given to him by Beatty, Gensler urges Congress to recall that there were three banks that failed — not just SVB. He mentions that Signature and Silvergate failed too, largely due to crypto exposure, and mentions the resulting depeg of USDC.

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Rep. Barr (R-KY) challenges Gensler on SAB 121, which requires banks to include on balance sheets crypto assets that they're custodying on behalf of customers. Barr is concerned that this means banks won't be able to custody crypto, making customers turn offshore, "diminishing American competitiveness".

https://www.sec.gov/oca/staff-accounting-bulletin-121

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Barr: "Has it occurred to you the irony at the same time you pursued SAB 121 which has effectively procluded highly regulated banks from offering the safety and security of segregated digital asset custody services, not a single one of the 4,500 employees under your supervision at the SEC noticed that FTX was allowed to commingle customer funds, allowed FTX to trade, settle, custody, and lend and borrow digital assets without institutional-grade custody?"

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Gensler says he's proud of SAB 121, and that bankruptcies of Celsius etc. have shown how customers end up standing in line for their assets along with everyone else. Barr cuts him off: "Reclaiming my time"

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Barr: "I find it very interesting that nobody at the SEC under your supervision noticed that FTX — a one-time $32 billion company — was run on QuickBooks!"

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