Reports are growing that Gary Gensler is being tapped by President-elect Joe Biden to be the next chairman of the U.S. Securities and Exchange Commission.
But will Gensler be a friend or a foe to the crypto community—and if confirmed, what would his appointment mean for the industry’s attempt’s to gain permission for a Bitcoin exchange-traded fund, or ETF, and for the SEC’s upcoming showdown against Ripple?
Gensler spent a large part of his career at Goldman Sachs and hit the big time early, becoming a partner at the age of 30. In the Obama administration, he served as chair of the Commodity Futures Trading Commission.
If appointed, his tenure at the SEC would likely be considerably different than Jay Clayton’s, whose legacy has been tainted by a considerable lack of regulatory certainty surrounding digital assets—much to the exasperation of the cryptocurrency innovators and investors, as well as some regulators like SEC Commissioner Hester “Crypto Mom” Peirce.
Crypto regulation is an issue that Gensler—who currently serves as a professor teaching digital assets and blockchain at MIT—is unlikely to allow the agency to ignore any further, especially as China continues to extend its lead in the race to launch a central bank digital currency.
Gensler has written passionately about this technology in the past, so there’s great hope that this is a task he will be eager to embrace.
Here’s a key quote from an op-ed that Gensler wrote in a CoinDesk op-ed in December 2019:
“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.”
Gensler went on to note that “we already live in an age of digital money,” saying that cryptocurrencies and blockchain “have already prompted real change, and can continue to do so.”
What should we expect?
There’s now one week to go until Joe Biden’s inauguration—and plenty of questions to ask about what an SEC led by Gary Gensler will look at. Will he go after other ICOs like his successor? Will crypto companies get a clearer set of rules to operate from? Although he appreciates how digital assets have exposed some of the biggest shortcomings in America’s payment systems, does he believe that crypto should have a place in solving them?
The mood on Crypto Twitter was largely positive following the announcement. At the time of writing, an ongoing poll launched by the exchange OKEx suggests that 75.2% of respondents think Gensler’s appointment is good for crypto, while 24.8% don’t. The exchange itself said it believes this “really improves the chances that the Bitcoin market gets an ETF in the coming years”—after years of rejection.
Crypto trader Scott Melker wrote: “Gary Gensler may be the hero we need but don’t deserve.”
And Block.one co-founder and CEO Brendan Blumer wrote: “Regulators that embrace technology and bridge the gap between innovation and public policy will do good for the USA and the world.”
The cheer hasn’t necessarily extended to the Wall Street. Announcing the news on Jan. 12, Reuters said that Gensler’s appointment “is expected to put an end to the four years of rule-easing that Wall Street banks, brokers, funds and public companies have enjoyed.”
All of this also comes as the worlds of Wall Street and crypto come closer, with institutional adoption on the up. Last month, Coinbase filed a confidential S-1 form with the SEC and announced that it was planning to go public. This application is now being reviewed by the commission, and if the IPO is successful, it’s highly likely that a plethora of other exchanges will follow suit.
No soft touch
But this doesn’t necessarily mean that Gensler will be a soft touch when it comes to regulating digital assets—and if you go back even further, to October 2018, you’ll also uncover a significant development that might not bode well for arguments that most cryptocurrencies are not securities.
At the time, he said that he believed most cryptocurrencies sold through initial coin offerings should be classed as securities. Gensler went on to say that he believes ether would have fallen into this category at the time of its ICO, but added that the project had become more decentralized in the years that followed.
And while XRP was not launched with an ICO, Gensler’s appointment may not be great for Ripple, which is being sued by the SEC, which claims the international payments firm’s sales of the fourth-largest cryptocurrency were illegal as it is an unregistered security.
In April 2018, Gensler told the New York Times that there was “a strong case” that both ether and XRP—and “particularly” XRP, which he referred to as ripple—“are noncompliant securities.”
He added that bitcoin could likely avoid that designation, and that ether had a chance as—at the time—mining of ETH was becoming more decentralized. Both bitcoin and ether were subsequently confirmed to be non-securities by regulators.
Whether his thinking has evolved is unclear. Ripple, however, has been very clear that it intends to fight the suit, which it accused Clayton of foisting upon the agency on his last day in office.
The suit “is certainly a direct assault on Ripple, but I think it’s so much more than that,” Ripple General Counsel Stuart Alderoty told Modern consensus on Dec. 21. “I think it’s an assault on an entire American crypto industry and American innovation.”
Asked about Gensler’s appointment, Alderoty said via email on Jan. 13 that “Mr. Gensler is smart and has shown a strong understanding of blockchain and crypto. We look forward to working with the new administration to chart a much needed path forward to regulatory clarity for this innovation in the U.S.”