U.S. crypto legislation will depend on Sen. Sherrod Brown, who amplified his view Tuesday that he sees the industry as jammed with fraudsters and abuse.
Securities and Exchange Commission Chair Gary Gensler – a Wall Street native – characterized the crypto sector as demonstrating the worst behavior he’s ever seen.

While U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler was in the hot seat at a Senate hearing on Tuesday, the most important crypto sentiments may have come from Sen. Sherrod Brown (D-Ohio), who tarred much of the industry as dangerous fraudsters.

“The problems we saw at FTX are everywhere in crypto – the failure to provide real disclosure, the conflicts of interest, the risky bets with customer money that was supposed to be safe,” said Brown, the Senate Banking Committee’s chairman, whose committee will probably have to agree to any crypto legislation to provide the industry a regulatory framework. “FTX was just the biggest and the ugliest.”

Without Brown, a path for a stablecoin bill or a new blueprint for U.S. crypto market oversight is unlikely in the near term, and the Ohio lawmaker praised Gensler’s agency for what the industry has complained is regulation-by-enforcement.

“I’m glad the SEC is using its tools to crack down on abuse and enforce the law,” Brown said.

For his part at the panel’s routine SEC oversight hearing, Gensler reiterated his sharp skepticism of the sector.

“I’ve never seen a field that's so rife with misconduct,” Gensler said. “It’s daunting.”

Sen. Cynthia Lummis (R-Wyo.), a reliable ally of the digital assets industry, questioned him about the SEC’s accounting bulletin that advises public companies to keep crypto assets on their balance sheets. The guidance – known as Staff Accounting Bulletin 121 – tells public companies that if they’re handling crypto custody for customers, the assets have to be reflected on the companies’ balance sheets. That could have a major capital implication for banks, Lummis argued, pushing the regulated institutions out of that business.

Gensler said the SEC’s staff made that crypto-specific call because – unlike stocks and bonds – crypto assets aren’t easily segregated. And he said it’s not his agency’s business what the capital treatment is for those crypto assets.

“We don’t speak to how it’s backed,” he said. “That’s up to the bank regulators.”

Gensler’s SEC isn’t entirely ignoring crypto regulation in favor of enforcement actions like those they’ve aimed at Coinbase, Binance and others. His agency has been pursuing a number of rule proposals that would have direct effects on digital assets, though the effect is often about holding existing crypto businesses to current U.S. securities laws.

Congress – including some Democratic lawmakers that have historically been in step with Gensler – has been working on bills to establish specific rules of the road tailored to the industry, which counters Gensler’s view that current laws are sufficient. While two of the bills have cleared the House Financial Services Committee and some senators have proposed other options, Brown hasn’t yet indicated any willingness to take them up.

Regulations Securities and Exchange Commission Senate Banking Committee Testimony Gary Gensler Sherrod Brown

Jesse Hamilton

Jesse Hamilton is CoinDesk's deputy managing editor on the Global Policy and Regulation team, based in Washington, D.C. Before joining CoinDesk in 2022, he worked for more than a decade covering Wall Street regulation at Bloomberg News and Businessweek, writing about the early whisperings among federal agencies trying to decide what to do about crypto. He’s won several national honors in his reporting career, including from his time as a war correspondent in Iraq and as a police reporter for newspapers. Jesse is a graduate of Western Washington University, where he studied journalism and history. He has no crypto holdings.