Former Regulator For Obama Says More Scrutiny Of Ether, Ripple Coming

Gary Gensler, the finance chief for Hillary Clinton’s 2016 presidential bid and one of the top financial regulators in the Obama administration, is delving into the world of blockchain, taking a role in which he will focus on it for Massachusetts Institute of Technology.

According to a report in The New York Times, Gensler will write and teach about blockchain technology and the impact it will have on the financial industry. He will also reportedly use his role at MIT to warn that many of the blockchain projects will face more regulation and is expected to argue later Monday (April 23) that Ether and Ripple, popular cryptocurrencies, violated securities regulations in the U.S.  “There is a strong case for both of them — but particularly Ripple — that they are noncompliant securities,” Gensler told The New York Times in an interview.

Bitcoin, the original cryptocurrency, should be exempt from securities regulations, noted Gensler in the interview.  He said that Ether and Ripple should be considered securities and regulated as such. “2018 is going to be a very interesting time,” Gensler said. “Over 1,000 previously issued initial coin offerings, and over 100 exchanges that offer ICOs, are going to need to sort out how to come into compliance with U.S. securities law.” Aya Miyaguchi, the head of the Ethereum Foundation, told the NYT in an email statement that the foundation doesn’t control the supply of Ether and doesn’t have the ability to issue Ether. For Ripple and its XRP tokens, it may be harder for it to avoid being classified as a security, given the company holds most of the XRP tokens and does the lion’s share of the work to make the XRP tokens valuable. “XRP does not give its owners an interest or stake in Ripple, and they are not paid dividends,” he said. “XRP exists independent of Ripple, was created before the company and will exist after it.”

While Ether and Ripple backers have long argued their tokens shouldn’t be treated as securities, the Securities and Exchange Commission may side with Gensler. The NYT reported that the regulator and industry players have had meetings in which the SEC has said it’s mulling whether or not Ether should be considered a security. If the SEC decides that, it would be illegal for citizens of the U.S. to trade the cryptocurrencies on the exchanges where they currently do. That, noted the report, would make it more difficult to buy digital tokens and thus would drive the value down.  While Gensler thinks the digital tokens will face more regulation, he is a big supporter of blockchain, the underlying technology that enables cryptocurrency. Gensler thinks the technology will eventually replace many of the middlemen in financial transactions within the industry.