US Senators focused their questions on payments for order flow during the hearing of SEC chairman Gary Gensler on Tuesday. This hints that the Congress already has a deep understanding of issues that the SEC is likely to address in the course of several months.
Gensler's statements clearly show that he the players in the crypto industry are already going overboard, and recent actions by the SEC against companies like Coinbase Global (COIN) have indicated their readiness to take action.
And amid lobbying by the crypto industry in recent months and executive concerns about ransomware and hacking, the Congress is now more involved in cryptocurrencies and poses more pressing questions to regulators.
For example, Republican Senator Pat Toomey asked Gensler about stablecoins, a type of cryptocurrency that is usually pegged to the dollar and therefore does not fluctuate as much as Bitcoin and the like. It is not the most attractive cryptocurrency, but is easier to trade with. Toomey said stablecoins are not securities so they should be able to trade freely without complying with registration and disclosure requirements for securities.
"Stablecoins are not profitable, nor are they simply pegged to the dollar. Now you can use them to try to make a profit, but this is a second-tier activity. Do you think stablecoins can be securities themselves?" Toomey said.
"I think it could very well be securities, Senator," Gensler replied, referring to various financial instruments that the SEC considers securities. But Toomey said he doesn't think the coins fit this, and at the very least the agency should be more specific in how it values them.
Overall, Republicans in the group were more crypto-friendly in their comments and wanted more clarity from the agency on what is legal and what is not. Toomey said he is concerned that the SEC is not clarifying its rules for cryptocurrencies ahead of time, which is why crypto companies are uncertain on what will bring them to court.
Bitcoin and Ethereum stabilized because of this news.
"This is regulation by coercion and it is very undesirable, I am concerned that it could stifle internal innovation," said Toomey.
Gensler encouraged crypto companies to come and speak with the agency before launching new products. He argued that some of the problems in the crypto industry need to be addressed individually rather than by adopting general rules. Gensler also believes that most cryptocurrencies are securities, which means they cannot be sold to the investment community without disclosing risk information.
Gensler recently announced that there may be a ban on payment for order flow, as well as a number of other changes in the structure of the market. He explained that it has been about 16 years since they completely rewrote the structure of the national market. But overwriting can lead to limited discounts, including payment for exchange orders.
This is why Republicans were less supportive of payment restrictions on order flow. Senator Tim Scott, for instance, said the restrictions could result in the return of upfront brokers' commissions, which would reduce access to trade for groups that previously had no access to the markets.