The crypto community and the US Securities and Exchange Commission (SEC) have been locked in a cold war for years, and the tensions reached new heights with the appointment of Gary Gensler as SEC chair. Initially hailed as a crypto enthusiast, Gensler’s tenure has left many industry members disappointed and calling for him to step down. So, let’s find out what’s the problem!
Who is Gary Gensler
Gary Gensler is the US Securities and Exchange Commission (SEC) chair. The SEC is the main watchdog that regulates the digital asset market. The commissioner stepped in after US President Joe Biden's recommendation in April 2021.
Pictured: Gary Gensler. Fun fact: Gensler had been offered a position as an advisor to the Binance crypto exchange back in 2019 but declined it. It’s quite ironic, as in 2023 the SEC charged Binance.
Gensler's appointment was met with great optimism by the crypto community, because his predecessor, Jay Clayton, fell short of expectations. Clayton’s refusal to approve a Bitcoin exchange-traded fund (ETF) and the SEC’s accusation against popular crypto project Ripple for using an unregistered security (the XRP token) fueled the desire for change further. Industry members hoped that Gensler’s arrival would signal the end of the cold war with the watchdog. (Spoiler alert: nothing changed)
At first glance, Gary Gensler seemed like a good fit for the role, as he was well-known for his crypto friendly stance during his MIT residency, where he gave a course of lectures on blockchain and digital assets and spoke positively about this new financial tool.
However, Gensler's record as SEC chair has left much to be desired. His only notable accomplishment is the approval of a Bitcoin futures ETF, rather than the spot version that many crypto investors had hoped for so badly.
Why has the crypto community turned against Gensler
Gensler’s tenure as SEC chair has brought significant pressure to bear on the crypto industry. And the Commission's sanctions have often lacked a transparent justification.
Cryptocurrency issuers have been particularly impacted. The lack of clear rules regarding the status of digital assets in the US allows the SEC to rely on its own subjective judgment. We previously discussed why the Commission considers some coins as securities while others as commodities.
According to Gensler, all cryptocurrencies, except Bitcoin, could be considered illegally issued securities. Guided by his vision, the watchdog started compiling a "black list" of coins. Besides XRP, this list includes 68 other cryptocurrencies that the SEC has deemed to be illegally issued securities.Interestingly, the second-largest coin in terms of market capitalization, Ethereum, managed to avoid being blacklisted, while other technically similar cryptocurrencies were not so fortunate.
The LBRY crypto project team, whose coin received a slap from the SEC, believes that the Ethereum team bribed the watchdog to protect ETH. It is amusing that Gensler himself seems clueless about Ethereum's status, as revealed during his discussion with Senator Patrick McHenry.
At the same time, the SEC has been keeping a close eye on crypto exchanges. In June 2023, the two largest trading platforms, Binance and Coinbase, were sued by the SEC. Both exchanges were caught offering clients tools to trade spoiled cryptocurrencies from the "black list".
The SEC’s approach to picking its targets has become a meme-worthy subject.
So, here is the situation: the SEC is cracking down on crypto all around without a clear legal framework to regulate the market. If there are no well-defined laws, how can the crypto community possibly comply with them? It seems like Gensler himself does not really care about this issue. In a YouTube show appearance, he boldly stated that the SEC does not need any additional tools to regulate the digital asset market. Naturally, members of the crypto community turned his statement into a running joke about a typical day in the Gary’s life as the head of the Commission:
What is Gensler accused of
The chaotic actions of the Commission caught the attention of the US House of Representatives. In April 2023, Gensler had to testify in front of the House Financial Services Committee. And during the grilling, Senator Warren Davidson from Ohio listed a bunch of reasons why Gensler should step down. Here are a few:
- The SEC does not have clear guidelines on how to take action. Yet, they are still going after market participants, and some cases, like the Ripple one, have been dragging on for years.
- Unrealistic requirements market participants have to deal with. In February 2023, the SEC introduced new rules stating that investment advisors can only work with qualified custodians (organizations that hold securities or assets). But here is the kicker: most crypto exchanges do not meet the requirements. So, these new rules end up leaving trading platforms with a lot fewer customers.
- Gensler's arrival brought a brain drain to the SEC. The new and inexperienced staff steps in and quickly quits the job, as they are unable to cope with the Commission's tasks.
According to Davidson, having Gensler in charge is just making everything worse.
And it is not just politicians who want Gensler out. The crypto community itself is doing everything it can to get rid of him. There is actually a petition that was posted back in August 2022 demanding the commissioner's dismissal, and it has already gotten nearly 35,000 signatures. The US Blockchain Association, along with American politicians Warren Davidson and Tom Emmer, joined the chorus calling for Gensler to hit the road.
Waiting for Gensler's dismissal?
But for now, Gensler is still hanging on to his SEC chair, despite all the calls for him to be shown the door. The Commission has not demonstrated any signs of actually firing Gensler, but anything could happen.
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