A fresh perspective on the misunderstood SEC Chairman Gary Gensler
Gensler may have factions, personal interests, external pressures, or even benefits, but the process of the crypto world integrating into the mainstream is indeed accelerating.Author: Fu Ruo, Odaily Planet Daily
When it comes to the "public enemy" of the crypto world, many people's first reaction is the U.S. Securities and Exchange Commission (SEC). Every time a project or a well-known individual is targeted by the SEC, it leads to a round of market declines, and SEC Chairman Gary Gensler has become "notorious."
Since taking office as SEC Chairman in April 2021, Gary Gensler has been in office for more than half of his term. During his tenure, he has frequently "opened fire" on the crypto industry, making regulatory statements such as "the vast majority of tokens in the crypto market are securities, so the issuance and sale of these securities-like crypto tokens will be subject to securities law regulation." He has also led cases against many well-known crypto companies, including Binance, Coinbase, Kraken, and FTX.
Various signs indicate that Gary Gensler seems to harbor biases against the crypto industry, but is the reality truly as everyone "sees"? Odaily Planet Daily will provide a fresh perspective to help everyone re-understand SEC Chairman Gary Gensler.
A Goldman Sachs Educator Turned Crypto "Iron-Fisted Instructor"
Gary Gensler's Work Experience: Iron-Fisted is His Style
Gensler was born into a Jewish family and was exposed to finance from a young age. After graduation, he followed a conventional path to work at Wall Street giant Goldman Sachs, becoming one of the youngest partners at Goldman Sachs at the age of 30, ultimately spending 18 years of his youth there.
In 1995, Goldman Sachs CEO Robert Rubin became the U.S. Secretary of the Treasury, and Gensler followed Rubin to join the Treasury Department as Assistant Secretary for Financial Markets, officially starting his political career.
Gensler has always been a staunch Democrat, advising Barack Obama's presidential campaign in 2008, and later serving as Chairman of the Commodity Futures Trading Commission (CFTC) during Obama's presidency. At that time, following the financial crisis, the derivatives market was in a state of disarray, and Gensler took a regulatory approach, continuously introducing new regulations to help rebuild order in the U.S. derivatives market. As a result, Gensler was referred to as "one of the key reformers after the financial crisis."
After Obama's term, Gensler also served as the Chief Financial Officer for Hillary Clinton's 2016 presidential campaign. With Trump's victory, Gensler's political prospects dimmed, and he went to the Massachusetts Institute of Technology (MIT) to teach a course on "Blockchain and Money."
During his teaching tenure, Gensler encouraged students to engage in the blockchain industry and praised blockchain's potential to change lives using Algorand as an example. "Perhaps in five years, you could build Uber or Lyft on the blockchain… By then, the blockchain will have certain strengths in performance, like Silvio Micali's Algorand, who is a Turing Award winner from MIT, and we worked together. Silvio has great technology and performance, and you can develop Uber on (Algorand)."
In 2020, after Biden won the election, Gensler was nominated by Biden to be the SEC Chairman, marking the beginning of his entanglement with the crypto industry.
From Gensler's work experience, it is not difficult to see that his current tough regulatory style stems from his time as CFTC Chairman. Perhaps in his mind, the current crypto industry bears similarities to the derivatives market after the financial crisis. However, the author believes that his passion for the crypto industry during his time at MIT is not a facade. Such a contradictory experience in Gensler has likely led to public misjudgment of him.
A Review of Gensler's Law Enforcement Actions Against the Crypto Industry
From 2021 to 2024, the SEC led by Gensler has taken many significant law enforcement actions against the cryptocurrency industry. Here are some detailed cases:
Ripple Labs:
Case Summary: In December 2020, the SEC filed a lawsuit against Ripple Labs, accusing it of conducting an unregistered securities offering through the sale of XRP tokens. The case continued to progress in 2021, with Ripple arguing that XRP is not a security.
Outcome: In a court ruling in July 2023, Ripple achieved a partial victory, with some actions deemed not to be securities, but still faced violations; subsequently, the SEC demanded Ripple pay nearly $2 billion in fines, and the final judgment is still pending.
Coinbase:
Case Summary: In September 2021, the SEC warned Coinbase that its planned lending product might constitute unregistered securities and threatened to sue Coinbase.
Outcome: Coinbase canceled the launch of the lending product and continued to cooperate with the SEC to ensure compliance of its other products.
BitConnect:
Case Summary: The SEC filed a lawsuit against BitConnect and its founders, accusing them of running a Ponzi scheme worth over $2 billion.
Outcome: Several senior executives of BitConnect were indicted, and the case is still ongoing.
BlockFi:
Case Summary: The SEC accused BlockFi of offering unregistered crypto lending products that constituted securities.
Outcome: BlockFi agreed to pay a $100 million fine to settle, with $50 million going to the SEC and another $50 million to state regulators.
Kraken:
Case Summary: The SEC accused Kraken's staking program of constituting unregistered securities.
Outcome: Kraken agreed to pay a $30 million fine to settle.
FTX and SBF (Sam Bankman-Fried):
Case Summary: In November 2022, FTX filed for bankruptcy due to a liquidity crisis, exposing issues in financial management and risk control. In 2023, SBF was charged with fraud and misappropriation of funds.
Outcome: SBF faces multiple legal lawsuits, and the case is still ongoing.
Binance and CZ (Changpeng Zhao):
Case Summary: The SEC launched an investigation into Binance and its founder CZ, accusing them of defrauding investors and not registering their exchange operations.
Outcome: Binance agreed to forfeit $2.5 billion and pay $1.8 billion in criminal fines, totaling $4.3 billion. CZ was sentenced to four months in prison.
Genesis and Gemini:
Case Summary: The SEC filed a lawsuit against crypto lending platform Genesis and crypto exchange Gemini, accusing them of attracting investors through unregistered crypto lending products, violating securities laws.
Outcome: The case is still ongoing.
Terraform Labs and Do Kwon:
Case Summary: The SEC filed a lawsuit against Terraform Labs and its founder Do Kwon, accusing them of defrauding investors and misleading the public regarding the issuance and sale of unregistered securities.
Outcome: The case is still under review, and Do Kwon and Terraform Labs face serious legal consequences.
From the aforementioned cases, it is evident that the SEC, under Gensler's leadership, has a near-zero tolerance for staking and lending products launched by crypto exchanges, followed by accountability for related black swan events, and finally, cases related to anti-fraud and anti-money laundering. These three types of law enforcement actions are more easily accepted by the crypto industry and are conducive to the industry's development. However, the SEC's judgment on whether tokens are considered "securities" has raised public skepticism.
Currently, the SEC's judgment standard comes from the Howey Test, which was established based on a U.S. Supreme Court ruling in the 1936 case "SEC v. W.J. Howey Co." The main principle of the Howey Test is that if all of the following conditions are met, the transaction will be considered a securities offering:
Investors invest money or other fungible assets;
The investors' investment is in a common enterprise;
Investors expect to rely on the efforts of a third party (usually a company or other entity) to obtain investment returns;
The investors' returns primarily depend on the efforts of the third party.
All four conditions typically need to be met, but tokens can be quite complex; they may meet the above conditions in certain activities while not in others, leading to an awkward situation where "each side has its own reasoning." Gensler has thus drawn ridicule from the crypto industry.
Despite the Criticism, Gensler Still Promotes the Integration of the Crypto Industry into Mainstream Finance
The crypto industry's view of Gensler is largely negative, with frequent claims that he is gradually destroying the crypto industry, and most articles criticize Gensler and the SEC from this perspective.
Is this perspective truly correct? From the author's viewpoint, such views are biased. Looking at the entire 15-year history of the crypto industry, the SEC's role in promoting the crypto industry during Gensler's three years in office is unparalleled.
Let's review the significant events that have positively impacted the crypto industry during Gensler's tenure from April 2021 to now.
In October 2021, the first Bitcoin futures ETF was launched.
In January 2024, the first Bitcoin spot ETF will be launched.
In May 2024, the approval of the Ethereum spot ETF's 19b-4 filing. (Several institutions have indicated that Ethereum spot ETF products will be launched this month.)
These three major events hold extraordinary significance for the crypto industry.
The author shares a personal experience: previously, when asked what industry I was in, mentioning crypto, virtual currency, or Bitcoin would lead people to warn me, "This industry has problems; find a proper job as soon as possible," to which I could only smile. After all, based on previous attitudes and the industry's status, it was indeed hard to refute. However, this year, when discussing such issues, people around me can think of the U.S. launching Bitcoin spot ETFs and Hong Kong's positive attitude towards Web3, eagerly asking me about industry developments, and there is no need to avoid discussing related projects.
From the above experiences, the SEC's approval of cryptocurrency ETFs serves as a formal endorsement for the crypto industry to enter the mainstream world, allowing the crypto industry to present itself globally with an official identity. Just based on this, Gensler deserves a place in the history of the crypto industry.
Some may argue that even if someone else were to serve as SEC Chairman, they would similarly approve cryptocurrency ETFs given the current trends. But isn't such a view merely "hindsight"? How the current trends are formed and whether the SEC's role in approving cryptocurrency ETFs is underestimated cannot be measured. However, for mainstream capital to enter the crypto industry, it must also be based on safety; compared to such claims, the author believes that this mainstream capital would trust the safety brought by national-level endorsements more.
At the same time, many believe that the SEC led by Gensler has also brought certain negative impacts to the crypto industry, especially regarding market declines and the development of related projects. However, looking at the SEC's law enforcement activities, part of it involves black swan events, such as FTX and BitConnect; these events are bound to cause market fluctuations. The remaining issues mostly revolve around the classification of securities-like tokens. This indirectly reflects that the mainstream world is trying to establish a framework for the crypto industry. Although the final determination of the framework is still undecided, this is also an essential path that Gensler and the SEC are actively attempting.
As for the short-term market fluctuations caused, they will ultimately be smoothed out by time, merely representing a small fluctuation in the overall market trend. However, the cryptocurrency ETFs approved by the SEC in recent years will undoubtedly leave a significant mark in the annals of history.
In summary, while Gensler may have his factions, personal interests, external pressures, and even benefits, the author prefers to believe that he is facilitating the crypto world’s swift integration into the mainstream world in his own way.
