WHEN: Today, Friday, January 12, 2024
WHERE: CNBC’s “Squawk Box”
Following is the unofficial transcript of a CNBC interview with SEC Chair Gary Gensler on CNBC’s “Squawk Box” (M-F, 9AM-11AM ET) today, Friday, January 12. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/01/12/sec-chair-gensler-on-bitcoin-etf-approval-the-underlying-asset-is-highly-speculative-and-volatile.html.
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: Welcome back to “Squawk Box”. On Wednesday, the SEC approving 11 spot bitcoin ETFs, nearly $5 billion worth of shares traded across these ETFs on one day. Joining us right now, first on CNBC following that decision that some described as historic, is SEC Chair Gary Gensler. Chair Gensler, we appreciate you being with us. Let me start by asking you this, do you consider the decision historic? And it appears that it’s a decision that you made either reluctantly or perhaps even begrudgingly.
GARY GENSLER: Well, look, Andrew, this has been considered for a long time, as you know, starting under Chair Clayton, we had disapproved a number of these over the years. And something had changed. I am a deep believer in the rule of law and a respect for the courts and taking a new court decision into consideration, we moved forward. I think this is the most sustainable path forward.
SORKIN: So, it appears, though, from what you’re saying, and reading through the decision as well, that what changed is not necessarily something inherent to crypto or bitcoin per se, but what changed was what the courts did. Is that the way to think about this?
GENSLER: Well, again, I mean, we do everything here at the Securities and Exchange Commission within the law and within how the courts interpret those laws. And that’s what the American people expect and that’s what we do here.
SORKIN: What is your message to investors about bitcoin now? Because we’re going to have all sorts of public investors now potentially have access to bitcoin in a way they didn’t before. We were just talking to Larry Fink. He said that he got a huge wave of new investors getting into bitcoin through this ETF. You have still suggested to be cautious about it, and I — I’m trying to understand how you think about those crosscurrents in terms of the message you’re telling investors?
GENSLER: Well, look, bitcoin itself, we did not approve, we did not endorse. This is a product called an exchange traded product, a way that investors can invest in that underlying non-security commodity called bitcoin. But, yes, investors, I think, should be aware that this — the underlying asset is a highly speculative, volatile asset, and amongst its use cases is really for illicit activity, money laundering and sanctions and ransomware and the like. And I know that you’ve asked other people over the last few days, is it being used as a store of value? It is a speculative value store of value. Is it being used as a payment anywhere? Are we buying cups of coffee with it? Not really. The only payment mechanism it’s being used for in sort of a — in a primary sense is illicit activity. So I think you’ve been spot on about that, Andrew.
JOE KERNEN: So, just — on that note, Mr. Chairman, I — someone — this is — I’m not going to take, you know, either side on the whole thing. And it’s kind of funny, but these are — I don’t know the exact units, but if you look since 2017, what’s been used to launder money, 20,000 is the unit for — 20,000 is the unit for a dollar. Thirty-three is the unit for bitcoin. So, that’s a multiple of I don’t know how much for dollars being used for money laundering versus bitcoin. But now, I could see bitcoin bear saying, really? Well, it’s not even good for money laundering, then it has zero value. I could just see that as another arrow in the quiver for the bear case. But what I was — the question I wanted to ask you was — let’s take the continuum, let’s take the rat poison, Beanie Baby, Jamie Dimon, Charlie Munger, versus we had yesterday on, our Coinbase CEO, did you hear him make the case for bitcoin? I mean, it was beau — it was almost like a symphony to bitcoin bulls, Chair Gensler. The proof of work, akin to gold, every monetary aspect we’ve had for thousands of years is represented perfectly, and Tom Lee, there’s never been a mistake on the Blockchain out of trillions of transactions. You understand it. You taught at MIT. Which is it? Is it a Beanie Baby in your view, or is it something that has inherent value that’s going to be part of the financial system decades from now? Which is it?
GENSLER: Look, there — no doubt there are innovations within this field and those innovations which I taught about at MIT around a ledger system. It’s just an accounting system called the Blockchain technology. But there’s an irony in the midst of that. Satoshi Nakamoto said this was going to be a decentralized system. And finance — this has led to centralization. Think about the irony of those who say this week is historic. This was about centralization and traditional means of finance that investors who could already express themselves in bitcoin, you could already, before this week, buy it through major brokerage houses, but now you can buy it through this thing called an exchange traded product as well, centralized.
KERNEN: But the underlying asset still — the underlying asset still has the decentralized distributed ledger, all those characters, that sounds like a — I don’t know, that sounds like —
GENSLER: No, Andrew, with all respect, there’s a lot of centralization here. And even the underlying ledger, largely the bitcoins produced by a handful of mining companies and the like. And so, I’m just saying, now, in terms of monetary history, monetary history, we have a dollar, we have a yen, we have a euro, we have renminbi, and there’s a reason for it because we do have a common economy that relies on those currencies.
SORKIN: Chief Gensler, let me ask you this, though, is there a possibility, despite the fact that this has been now approved, that this spot ETF has been approved, that you could see a day where bitcoin itself in some way would be outlawed? I asked because if you recall, and now, there’s a lawsuit taking place between Coinbase and the SEC, they went public and they now made — you have come back and said there are certain unregistered securities and the like that are on their platform, they say, well, you approved us the first time, how can you come back and say this is not kosher? And so, I think there is this other question about it — and I know you’re not endorsing bitcoin — does that still open up the possibility that bitcoin could somehow come under fire from the SEC or some other agency?
GENSLER: Look, let me — let me talk about this field more broadly. And the American public is aware of this. It’s rife with conflicts. It’s rife with fraud and abuse. Without prejudging any one token, many of these tokens, I would suggest majority of these tokens are actually securities under the securities law. And — and so, the platforms, the various places that you might buy or sell these crypto security tokens need to come into compliance with the federal laws.
SORKIN: What did you make of what Elizabeth Warren who was very supportive of you taking this role originally coming out and saying the SEC is wrong on the law and wrong on the policy?
GENSLER: I have deep respect for those who may have been on the other side of this. But, again, I have deep respect for the law and how courts interpret the law. We had D.C. Circuit, three-judge panel rule on this. We looked at it, and I thought this was the most sustainable path forward.
SORKIN: How do you think about other cryptocurrencies, people now talking about whether there should be an Ethereum ETF and the like? Is that something that you think you would take on proactively? Is that something that ultimately in the same way that Grayscale had to go to court? Is that — does the — does the court decision around bitcoin to you act as a precedent on other currencies?
GENSLER: I — I look at what we did this week as it’s cabin to one non-security commodity called bitcoin. Like we’ve had gold spot exchange traded products and silver exchange traded products —
SORKIN: Right.
GENSLER: — in the past and approved in the past. This is cabin just to that one non-security commodity token.
SORKIN: Larry Fink made a fascinating point earlier this morning that the industry including Blackrock campaigned to you to ask for the ability for those who owned bitcoin through, for example, a Grayscale, that fund, to be able to transfer the assets to others of Fidelity, Blackrock, and Ark, some of the others who have gone in these approved ETFs, and do so without effectively selling that and creating a tax at that moment. You have said that it’s not allowed, but however, when it comes to stocks and I believe most commodities, you could move those from different funds to funds, no? What was the decision process and thought process around that?
GENSLER: Look, I — of course, I think you can probably understand we’re not going to get behind like any discussions between one registrant asking staff for guidance about these things. But what we did this week was cabin just to these filings from the stock exchanges about listing these exchange traded products. I would note that one of them, the largest as you said, Grayscale, who was already trading in the over the counter market. So, in essence, you get the added investor protection of the stock exchanges surveilling the market and surveilling them for fraud and manipulation and trying to help and protect the public in what otherwise is a highly speculative, volatile asset that’s by and large been trading in the spot market on noncompliant conflicted exchanges.
KERNEN: You emphasize that a lot, Gary. So, that’s a thing. You said it three or four times, highly speculative, very volatile, and you make the point that the court decision is really paramount in your decision and that you still just give me the impression you think investors really, really need to be protected and you’re unable to do what you would like to do because of the rule of law, which is to not allow for a spot ETF. And then you mentioned gold spot ETFs. Do you think there’s the same protection needed for investors that invest in gold ETFs? Or do you think that bitcoin is completely different in terms of the risk and the amount of warning that investors should get if they tread here?
GENSLER: Look, each have their risk and we’re, by statute, we’re merit neutral, but we also have an investor education perspective. And I would say broker dealers and investment advisers have obligations, the investment advisers have fiduciary duties and broker dealers have a rule on the books looking after people’s best interests, and so that’s why I’m raising some of the risks.
SORKIN: Chair Gensler, I want to thank you. It is a longer conversation and we hope to be able to have that with you in person at some point soon. We very much appreciate you joining us first here on CBNC after what, as I said, some people have seen as a historic decision. I think you may differ on that, but we’ll talk about it again, I’m sure, with you very soon. Thanks again.
GENSLER: Thanks.
