Some "dirt" on the SEC Chairman

Original Title: "Gensler's Done It All Before"

Original Source: BitMEX

Original Author: Jonathan Bier

Gary Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC), is a prominent figure in the cryptocurrency space. He is at the center of nearly everything, including regulatory actions against Coinbase and Binance, Bitcoin ETF adoption, potential rules that could prevent institutions from acting as cryptocurrency custodians, and a series of legal cases.

These SEC activities have been key drivers of cryptocurrency prices in recent years, whether investigations and charges lead to price drops or when the SEC is perceived to fail in court, causing prices to rise. Some in the cryptocurrency community are eager to oppose and mock Gensler, pointing out potential logical fallacies, inconsistencies, and contradictions in his stance. Gensler memes flood crypto Twitter, and even Gensler Coin has emerged. For some, Gensler is quickly becoming the most prominent villain in the cryptocurrency space, drawing intense scrutiny.

However, one thing that today’s young cryptographers may not know is that Gary Gensler has previously understood everything they know, at least to some extent. Gensler was once portrayed as another passionate and dedicated "rebel" in the online community. The best candidates for the Bitcoin progenitor movement were conspiracy macro traders/gold bugs/gold and precious metals traders from 2009 to 2012. Coincidentally, this group was also not a friend of Gensler.

Today, Gensler is the chairman of the SEC, but in an earlier cycle, he held the same position in the commodities sector, namely as the chairman of the Commodity Futures Trading Commission (CFTC). At that time, some in the internet-driven gold and precious metals trader community also did not like Gensler. Just like today, Gensler was repeatedly accused by an active and passionate community of improper regulatory behavior, failing to protect the interests of small participants, thereby benefiting large financial institutions.

1. History Never Repeats Itself, But It Often Rhymes

In this article, we attempt to compare the situation from 2009 to 2012 with the current state of the cryptocurrency space. Of course, while there are many key differences, there are also some strange similarities. The most striking is, of course, Gary Gensler, who plays a very similar and prominent role in both instances.

1. Core Narratives

(1) Core Narrative of Gold and Precious Metals Trading from 2009 to 2012

Incompetent bankers lost vast sums of money during the 2008 financial crisis. Politicians with conflicts of interest then bailed out bankers with taxpayer money, exacerbating the imbalance and further entrenching crony capitalism and bad incentives, worsening the situation. Due to massive bailouts, the public debt burden became unsustainable. The U.S. government could not repay its debts, leading to rampant inflation. This is why people should invest in gold, as it is an asset whose value "cannot be exaggerated by the authorities."

(2) Core Narrative of Bitcoin and Cryptocurrency Trading from 2013 to Present

Compared to precious metals, the positive narratives surrounding cryptocurrencies are more diverse.

• The total supply of currencies like Bitcoin is known and immutable, making it superior to the dollar, which can be inflated due to inappropriate debt burdens.
• Censorship-resistant currencies are a promising area due to the increasingly sensitive regime towards expanding scrutiny.
• New distributed digital technologies achieve decentralization.
• Unblockable computing with significant user participation.
• End users own their data and platforms, which is a growing area as large tech companies increasingly exploit user data.

2. Ultimate Visions

(1) Gold and Precious Metals

Relative to the size of the physical market, the open contract value of gold contracts on the Chicago Mercantile Exchange is extremely high. Ultimately, more and more traders will demand physical delivery of their long positions, and trading platforms will be unable to deliver. As gold prices rise, trading platforms will go bankrupt. This will lead to further loss of confidence in the dollar. To restore confidence in the dollar, the government will be forced to restore gold convertibility (as before 1971), unless prices are higher. This will reduce economic manipulation, ultimately leading to a stronger economy (after a painful period). Gold holders will become extremely wealthy.

(2) Bitcoin and Cryptocurrency

Many people's ultimate vision is the widespread adoption of these distributed financial systems. This will make the existing dominant centralized financial system less significant. Therefore, this will increase financial and economic freedom, leading to a stronger and more resilient economy, and the value of cryptocurrencies will correspondingly increase, benefiting their holders.

3. Price Manipulation

(1) Gold and Precious Metals

To defend the integrity of the dollar, U.S. authorities and their cooperating major banks are manipulating gold prices downward.

There are accusations that traders at JPMorgan, HSBC, and other large banks have access to exchange data, allowing them to see other traders' clearing prices. Other accusations include that they deliberately triggered crashes during periods of low liquidity to profit from them. Another accused issue is the lack of position limits, which allows some large entities to dominate and manipulate certain markets. Gold and silver banks have also been accused of underestimating the leverage of unallocated gold and silver against physical reserves.

Some accuse these banks of colluding with the Commodity Futures Trading Commission, claiming that the CFTC allows traders to manipulate these markets to defend the dollar. Due to the so-called revolving door between regulators and large banks, this means that regulators allow manipulative practices to continue, making it nearly impossible for small traders to profit in precious metals trading.

(2) Bitcoin and Cryptocurrency

Certain U.S. interest groups are allegedly not wishing for cryptocurrencies to succeed; they want to protect the business models of large financial institutions like JPMorgan, Goldman Sachs, CME, and BlackRock. These institutions are accused of having deep-rooted relationships with U.S. regulators. The theory continues that U.S. regulators will then unfairly crack down on domestic cryptocurrency companies and hypocritically interpret legislation. We have seen similar accusations citing the SEC's actions against Coinbase, Binance, Silvergate, and Digital Money Group. Meanwhile, U.S. regulators are allegedly "weaponizing" banks by encouraging them to block trades they dislike, such as those with crypto-native companies. This could allow mature financial institutions to profit from the thriving cryptocurrency space without competition, while hindering true cryptocurrency adoption.

4. Community

(1) Gold and Precious Metals

The global macroeconomic precious metals community consists of thousands of "day traders" who spend hours each day trading precious metal contracts and other macro tools on various platforms, often with leverage. Many of these traders are professionals in the financial services industry, while some are amateurs. There are many other members of the community who are not traders. Various news services, websites, podcasts, blogs, and research distributors share key narratives. Zerohedge is an important source for timely news and information. There are also metal and mining investment conferences that allow community members to meet.

(2) Bitcoin and Cryptocurrency

The global cryptocurrency community consists of thousands of "day traders" who spend hours each day trading cryptocurrencies on various platforms, often using leverage. There are many other members of the community who are not traders. The community communicates through various online platforms, such as mailing lists, IRC, podcasts, Telegram groups, Bitcointalk, Reddit, Discord, and Crypto Twitter. There are also many conferences and meetups around the world.

Whether in the gold and precious metals trading community or the cryptocurrency trading community, both harbor animosity towards Gary Gensler.

Another notable example of history repeating itself is the presence of dissenting commissioners who hold sympathetic views towards movements in their respective fields. Bart Chilton articulated his views on gold price manipulation, while Hester Peirce expressed her differing views on the SEC's cryptocurrency regulatory strategy. In both cases, the dissenting commissioners are respected in their respective fields and among industry insiders. Chilton and Peirce both participated in industry conferences/podcasts and interacted with their respective communities. Undoubtedly, Gensler's comments on Peirce today may be somewhat frustrating, just as comments on Chilton were thirteen years ago.

2. Precious Metals Price Manipulation

Many accusations of precious metals price manipulation during the 2010 period stem from whistleblower Andre Maguire in London. Maguire claimed he reported to the CFTC before abnormal price fluctuations occurred, only to be proven correct when the predicted price changes actually happened. Maguire alleged that traders, primarily from JPMorgan, engaged in this manipulation and illegal behavior at the expense of small traders, who suffered losses as a result. Consequently, JPMorgan's CEO Jamie Dimon is sometimes viewed as a villain by gold investors.

Blythe Masters is widely regarded as the inventor of credit default swaps (CDS); she was the head of JPMorgan's commodities business at the time. Thus, she is another villain in the eyes of gold investors. She held that position until the commodities division was sold in 2014. Critics argue that the sale of the commodities division was JPMorgan's attempt to evade responsibility for the alleged misconduct of that division. Ironically, after that, Blythe founded Digital Asset Holdings, a company widely regarded by insiders in the cryptocurrency industry as a typical "blockchain is not Bitcoin" fictional project, a pure waste of funds. Blythe later served as a non-executive director at Credit Suisse, which collapsed in 2023.

1. Gensler's Role in the Precious Metals Market

Some in the precious metals trading community accuse the CFTC and Gary Gensler of ignoring the market manipulation by financial institutions during the 2009 to 2012 period. A more extreme part of the community believes this is a conspiracy. In their view, banks like JPMorgan deliberately manipulated gold prices downward as part of a price suppression scheme, while regulators turned a blind eye or even colluded with the banks, as manipulating precious metal prices downward is a secret policy of the U.S. government. Some say Gensler is a key driver of this conspiracy. This narrative somewhat resembles the LIBOR manipulation scandal years later, where some accused bankers argued that their actions were known and supported by regulators.

Another accusation from some gold investors is that Gensler is expected to become the next Secretary of the Treasury in a future Democratic administration. This anticipated appointment is seen as a political payoff to Gensler, allowing large banks to manipulate metal markets without punishment. Years later, Gensler was indeed appointed as the chief financial officer of Hillary Clinton's 2016 presidential campaign, and had she won, Gensler becoming Secretary of the Treasury would certainly have been possible.

2. Actions of the Commodity Futures Trading Commission

Years later, in September 2020, after Gensler had long left the CFTC and completed his blockchain lectures at MIT, the regulator finally took action against JPMorgan for its fraudulent and manipulative behavior in the precious metals market. This was followed by a $920 million fine. However, by this time, most of the precious metals trading community had dispersed. Given the weak performance of precious metals from 2012 to 2020, many turned to the cryptocurrency space, while others lost interest. For some, the CFTC's actions in 2020 completely validated their positions and theories. Additionally, in July 2013, JPMorgan was fined $410 million for its involvement in the energy market, which is often seen as further evidence of manipulation by JPMorgan's commodities division.

In defense of financial institutions, one could argue that these regulatory actions can be seen as normal business costs. Since 2000, JPMorgan has had a total of 265 violations, with fines totaling $39 billion. Therefore, JPMorgan may have profited from misconduct across various markets, with precious metals being just one of them. In fact, the $920 million fine is only their 8th largest fine since 2000. Thus, precious metals manipulation may not be as special, significant, or unprecedented as some gold enthusiasts claim. Although it is undeniable that this seems to be a somewhat weak and cynical defense. The CFTC's actions also do not seem to prove that JPMorgan systematically manipulated gold and silver prices downward, as some conspiracy theories claim; they may have simply manipulated gold and silver prices for more profit. This manipulation may have occurred without regulatory approval and may not have been part of a government secret policy. Furthermore, during this period, JPMorgan and Blythe Masters insisted that they never engaged in proprietary trading in the precious metals market, only facilitating customer orders and market-making.

3. Gensler Accused of Being Two-Faced on Cryptocurrency

There are not many details here, as many readers are already aware of and familiar with the accusations against Gensler within the cryptocurrency community. In particular, Gensler held a positive stance on cryptocurrencies when he participated in the MIT course titled "Blockchain and Money" in 2018, but later adopted a more negative position. As early as 2018, some believed Gensler may have used misleading language common in ICOs while promoting the Algorand token.

Gensler also met with FTX CEO SBF and other FTX executives in October 2021, with some accusing him of having close ties to individuals associated with the company. Additionally, Gensler's previous statement that "there are not many crypto tokens that are securities" is now seen as contradictory to the SEC's current charges.

In light of the recent regulatory crackdown by the U.S. SEC, some accuse Gensler of being "hypocritical," acting improperly, and maintaining "strange" close relationships with fraudulent organizations while cracking down on more honest companies. Meanwhile, some of his critics again claim that his goal is to become Secretary of the Treasury.

Regardless of how one views Gensler, it is important to remember his unique experiences over the past 15 years or so. Gensler's past experiences may enable him to "navigate against the wind" more effectively than some might imagine.