Earlier this year, the crypto industry celebrated Gary Gensler’s appointment as US Securities and Exchange Commission (SEC) chairman on the back of his pro-blockchain and bitcoin stance. From a crypto perspective, Gensler has remained largely out of the limelight, until now.
‘Nakamoto is Real‘
After working on Hillary Clinton’s failed 2016 presidential campaign, Gensler soon migrated to MIT to teach fintech, with a special focus on blockchain and money where his lectures have received millions of views.
Crypto advocates could therefore be forgiven for expecting a lot more out of his appointment than has been experienced to date. With over a dozen crypto ETFs awaiting approval, a definitive statement from the chairman has been a long time coming.
In remarks made before the Aspen Security Forum, Gensler spoke of the intersection between crypto and national security by outlining the history of Bitcoin and the problem it sought to rectify.
Nakamoto had solved two riddles that had dogged these cryptographers and other technology experts for a couple of decades: first, how to move something of value on the internet without a central intermediary; and relatedly, how to prevent the “double-spending” of that valuable digital token … Subsequently, his innovation spurred the development of crypto assets and the underlying blockchain technology.
Gary Gensler
After noting his time spent researching, writing and teaching about fintech, he viewed the crypto field as being filled with “a lot of hype masquerading as reality”, however he continued to say that “Nakamoto’s innovation is real”.
Welcome to the Wild West
Speaking of the broader crypto ecosystem, Gensler commented: “Frankly, at this time, it’s more like the Wild West.” Specifically, he noted that, going forward, there would be a focus on tokens that are classified as securities, trading and DeFi platforms, stablecoins, and financial products tied to crypto such as exchange-traded funds.
I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight.
He also homed in on so-called stock tokens, which have drawn the attention of regulators around the world in recent months.
Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These products are subject to the securities laws and must work within our securities regime.
Gary Gensler
Speaking of stablecoins, he commented that they “may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and the like”. He highlighted the impact this could have on national security.
Gensler went on to note that large parts of crypto were presently operating outside of regulatory parameters intended to protect investors and consumers, guard against illicit activity, ensure financial stability, and protect national security.
Regulation Good or Bad?
Much like other regulators, the SEC has demonstrated that it is willing to take action, as it did earlier this year against BitConnect relating to the sale of some US$2 billion in unregistered securities. Since 2013, it has collected US$1.7 billion in penalties against crypto-related entities. This must of course be seen in the bigger context of the traditional financial sector.
While some crypto investors decry any form of regulation as antithetical to the crypto ethos, others are bound to welcome greater regulatory clarity. From blatant scams and rug-pulls to outright fraud and 125x leverage, it may be argued that these negative aspects of the industry have the effect of undermining any positive gains made by the sector.
Like most things, a delicate balance should be sought – in this case between investor protection and the free market. Naturally, crypto enthusiasts would prefer a lighter regulatory touch.
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