Gary Gensler May Resign, Analyze SEC's Approach to Crypto Regulation

[TL；DR]:

From the initial exploration and testing, to the gradual standardization now, the SEC’s crypto regulatory framework is becoming increasingly clear.

Gary Gensler’s leadership of regulatory actions under the SEC has caused market turbulence and investor concerns in the short term, but in the long run, it has also helped promote the standardization and mainstreaming of the crypto industry.

Gensler’s direct intervention and high-pressure regulatory strategy have led to a situation where its uation in the crypto market is more negative than positive.

Introduction

In recent years, the US Securities and Exchange Commission (SEC) has continuously strengthened its regulatory efforts in cryptocurrency. As the regulatory “godfather” of this field, SEC Chairman Gary Gensler has delivered speeches and statements on regulatory issues in the crypto market multiple times, striving to ensure market fairness and transparency by strengthening disclosure rules and penalty litigation. However, with the increasingly complex regulatory environment and the constantly changing market, especially Trump’s statement that he would immediately “fire” him once he takes office as president, Gensler’s regulatory policies also face increasing controversy and challenges.

The Intensity of Law Enforcement has Been Increasing Year by Year, and Gensler is Firmly Regulating the Crypto Market

Since 2020, the US Securities and Exchange Commission (SEC) has taken a series of significant measures in crypto regulation. Its decisions have not only deeply influenced the domestic market in the United States but also had a wide-ranging and far-reaching impact on the global crypto industry.

In 2020, the SEC established the basic framework for crypto regulation. At the beginning of that year, the SEC issued guidelines on determining whether digital assets belong to securities, providing clear compliance standards for the industry. In December of the same year, the SEC filed a lawsuit against Ripple Labs, accusing them of illegally selling unregistered security XRP. This case quickly became one of the most high-profile legal disputes in the crypto industry, triggering widespread attention to the SEC’s regulatory strength inside and outside the industry.

Source: Bloomberg Law News

Entering 2021, the SEC’s regulatory efforts have further strengthened. Although multiple companies have attempted to list Bitcoin ETFs in the United States, most applications have been rejected. However, the recognition of Grayscale Bitcoin Trust (GBTC) indirectly demonstrates the SEC’s open attitude towards crypto products. At the same time, the SEC has increased its investigation and enforcement efforts into crypto projects, launched multiple investigations into projects suspected of violating securities laws, and successfully sued several key companies, demonstrating its determination to strengthen market supervision.

In 2022, the regulatory scope of the SEC will be further expanded. The SEC has begun to shift its focus to decentralized finance (DeFi) platforms, warning that related projects may violate securities regulations, increasing compliance pressure on the DeFi eco. At the same time, the SEC has strengthened its scrutiny of stablecoin issuers and centralized crypto trading platforms, with a particular focus on transparency and reserve issues behind major stablecoins such as USDT and USDC. In addition, after FTX went bankrupt due to chaotic management and involvement in criminal activities, the SEC has increased its regulatory efforts on the crypto industry, viewing it as an industry filled with “scammers, fraudsters, and fraudsters” and adopting stricter regulatory measures.

By 2023, the regulatory strength of the SEC will significantly increase. At the beginning of the new year, the SEC filed charges against Genesis, a crypto lending company, and Gemini, a crypto exchange, marking the beginning of the annual regulatory battle. Subsequently, the SEC accused the crypto lending company Nexo of classifying its loan products as unregistered securities and reached a settlement with Nexo, which paid a huge fine. In addition, the SEC has filed lawsuits or issued warnings against several well-known crypto companies, accusing them of various violations. Some companies even choose to relocate, shut down their US operations, or seek settlements to avoid further legal disputes.

Source: pixelplex.io

As for this year, the most well-known one is that the SEC finally approved spot ETFs for Bitcoin and Ethereum, which greatly promoted the price discovery of Bitcoin this year. In addition, the SEC released a preliminary regulatory framework draft specifically for decentralized finance (DeFi) and non-fungible tokens (NFT) in the middle of this year. It recently expanded the existing registration to all platforms involved in crypto trading, mandating crypto exchanges and wallet service providers to register as formal securities exchanges or broker dealers, and strengthening control over the circulation of cryptocurrencies.

Gensler’s Strong Supervision, from Potential Allies to Open Enemies

Gary Gensler has been the Chairman of the US Securities and Exchange Commission (SEC) since April 2021. His career has spanned multiple important fields, including Goldman Sachs, the US Treasury Department, the Commodity Futures Trading Commission (CFTC), and the Massachusetts Institute of Technology (MIT).

He once taught the course “Blockchain and Currency” at MIT, held a positive attitude toward blockchain technology, and encouraged students to participate in the industry. He was once regarded as a friendly person in the crypto industry.

However, when Gensler was nominated by Biden as SEC Chairman, his tough regulatory style sparked huge controversy in the crypto industry. He frequently makes serious regulatory remarks, advocating that most tokens in the crypto market belong to securities and should be regulated by securities laws, and has led cases against many well-known crypto companies, including Ripple, Coinbase, Kraken, FTX, Binance, etc.

Source: CNBC

Although Gensler’s regulatory actions in the crypto industry have been controversial and even seen by some as the “enemy of the crypto world”, objectively speaking, his measures have also promoted the integration of the crypto industry into mainstream finance.

During his tenure, the SEC successively approved the listing of futures ETFs and spot ETFs for Bitcoin and Ethereum. The approval of these ETFs provides a formal identity for the crypto industry, marking a milestone for its further growth in the mainstream world.

Meanwhile, Gensler’s regulatory actions have also prompted the crypto industry to emphasize compliance more. Some companies seek cooperation with regulatory agencies to ensure the legality of their business and strengthen internal compliance management to avoid potential legal disputes. Of course, this increases the compliance costs for enterprises, and excessive enforcement actions also limit industry innovation and progress.

Source: @EleanorTerrett

Overall, Gary Gensler’s regulatory actions have caused market turbulence and investor concerns in the short term, but in the long run, they will also help promote the standardization and mainstreaming process of the crypto industry.

How Will the SEC’s Crypto Regulation Change after Trump Takes Office?

From the above, it is not difficult to see that Gensler’s direct intervention and high-pressure regulatory strategy have led to a situation where its uation in the crypto market is more negative than positive. Gensler said at the recent annual meeting of the Bar Association, “I am honored to work with them, serve the people, and ensure that our capital markets continue to maintain the best global standards.” However, this friendly remark did not quell industry dissatisfaction with its regulatory strategy.

As Trump enters the White House next year, the market has again praised his statement at the Bitcoin conference that he would fire Gary Gensler on his first day in office. Trump’s promise undoubtedly exacerbated Gensler’s difficulty leaving the SEC with dignity. However, dismissing the SEC chairman is not an easy task, as Trump must provide legitimate reasons for dismissal and undergo legal review and administrative transition, a process that may take over a year.

It is worth noting that Gary Gensler issued a statement last week suggesting that he may leave the SEC, and Ripple (XRP), which has been struggling with the SEC for many years, quickly rose 20% on this positive note, setting a new six-month high.

Source: Gate.io

According to Gensler’s speech, the SEC’s future crypto regulatory strategy may present the following new trends:

Suspend enforcement actions against registration violations: The new SEC chairman may suspend enforcement actions against crypto companies that only violate registration regulations, pending a clearer regulatory framework.

Release latest guidance: The SEC may update its guidelines on when digital assets are sold as securities to reflect changes in the industry over the past five years and address issues such as asset-backed stablecoins.

Propose crypto rules: Considering the differences between crypto assets and traditional securities, the SEC may propose tailored rules to regulate this emerging field more accurately.

Use immunity: The SEC may use its immunity to provide tailored remedies for crypto market participants to address potential challenges traditional securities rules pose.

Update statement for special purpose brokerage dealers: The SEC may update its guidance on special purpose brokerage dealers to make it more applicable to today’s crypto industry and extend related deadlines.

In addition, with the Republican Party controlling the Senate and potentially the House of Representatives, Congress also has the opportunity to pass crypto legislation. However, even so, the SEC will still play an important role in crypto regulation. The recently passed “21st Century Financial Innovation and Technology Act” and “Lummis Gillibrand Responsible Financial Innovation Act” with bipartisan support have opened up space for the SEC to regulate digital assets.

Overall, the high likelihood of Gary Gensler’s departure and the regulatory gap he leaves behind may bring new positive developments to the SEC’s crypto regulation. In the future, the SEC should ensure that industry perspectives are fully considered, promote technological innovation and market standardization processes, and equally need to find a balance between protecting investors and supporting market innovation.