This week, the U.S. Securities and Exchange Commission (SEC) launched two major legal actions against Binance and Coinbase, accusing the exchanges of flouting U.S. securities laws.
At the heart of this offensive is one man: Gary Gensler, who was appointed chair of the SEC in February 2021.
Gensler today looks like the crypto industry’s worst enemy, issuing what sounds like a blanket disavowal of crypto’s whole point-of-being. “We don’t need more digital currency…we already have digital currency, it’s called the U.S. dollar,” Gensler said Tuesday June 6.
“We have not seen, over the centuries, that economies and the public need more than one way to move value.”
But Gensler wasn’t always so trenchant a critic.
Before he started in the SEC hot seat, he was fresh from teaching courses on digital currency at the Massachusetts Institute of Technology and consulting with that school’s Digital Currency Initiative.
Here was the tone that Gensler struck in an op-ed for CoinDesk in December 2019: “Though literally thousands of projects have yet to land on broadly adopted use cases, I remain intrigued by Satoshi’s innovation’s potential to spur change – either directly or indirectly as a catalyst. The potential to lower verification and networking costs is worth pursuing, particularly to lower economic rents and data privacy costs, and promote economic inclusion."
“Further, shared blockchain applications might help jumpstart multiparty network solutions in fields that historically have been fragmented or resilient to change. Even in this slightly less ambitious form – acting as an innovative irritant to incumbents and traditional technologies – cryptocurrencies and blockchain technology have already prompted real change and can continue to do so," he added.
These words don’t sound like they come from someone who sees no use for crypto.
In March 2021, in his nomination speech before the U.S. Congress, Gensler praised the transformative role of financial technology, not pointing at crypto in particular, saying that “markets – and technology – are always changing. Our rules have to change along with them” and that “financial technology can be a powerful force for good – but only if we continue to harness the core values of the SEC in service of investors, issuers and the public.”
Having said that, since his first year as a head of the SEC, Gensler has been consistent in his stance that most cryptocurrencies fit the definition of securities, crypto exchanges need to register with the SEC and stablecoins are “poker chips” for gambling on crypto, which present systemic risk for the economy. He’s sticking to these points in his latest remarks.
Gensler also called for Congress to take steps towards a clearer regulation framework for crypto exchanges, noting that “right now there’s not a market regulator around these crypto exchanges and thus there’s really no protection around fraud or manipulation.”
Around the same time, Gensler said in his Congress testimony that the U.S. government, together with the Congress, should come up with more definitive rules for crypto. “I believe that the SEC, working with the CFTC [U.S. Commodity Futures Trading Commission] and others, can stand up more robust oversight and investor protection around the field of crypto finance,” Gensler said.
He also has been consistent in believing his agency has jurisdiction over crypto. “The SEC’s authorities in this space are clear,” he said at a House Financial Services Committee hearing in October 2022.
Somewhere in between Gensler’s nomination and this spring, the SEC chairman has changed his mind about the need for clarity, or realized what he was looking for can’t be achieved. The dramatic collapse of FTX, the exchange founded by Sam Bankman-Fried, in November no doubt forced Gensler to act, as lawmakers criticized the SEC for not waking up to FTX’s wrongdoing sooner and failing to protect investors in that enterprise.
In September 2022, Gensler hinted at the potential designation of ether (ETH) as a security. The SEC chair said that proof-of-stake (PoS) tokens could be securities, following the Ethereum blockchain’s monumental shift to that consensus mechanism from proof-of-work (PoW). However, Gensler did not comment on Ethereum specifically at the time.
Then he proceeded to chastise the crypto industry in short videos released on Twitter.
Last fall, Gensler said that the crypto industry has had all the clarity it even needed all along. In his prepared remarks to the Practicing Law Institute in September 2022 he said: “Nothing about the crypto markets is incompatible with the securities laws.”
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“Some in the crypto industry have called for greater ‘guidance’ with respect to crypto tokens. For the past five years, though, the commission has spoken with a pretty clear voice here,” he added.
Talking to the Congress in April 2023, Gensler conspicuously avoided answering whether he believes ether is a security or not. In contrast, the CFTC, with which, according to Gensler, the SEC has been working together towards a better industry oversight, has first signaled its opinion on the matter years ago, saying in a 2018 court case that ether is a commodity and sticking to this approach ever since.
Now, Gensler’s approach to crypto sounds openly hostile as he’s arguing that the rules as to what is and isn’t a security have been known and communicated to crypto fully. Talking to CNBC Tuesday, Gensler said “there’s been clarity for years” for crypto, and exchanges just “need to come into compliance.”
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