Since taking office at the US Securities and Exchange Commission (SEC), Chairman Gary Gensler has repeatedly been called the “bad cop” of the digital asset industry. In this sense, Over the past 18 months, Gensler has taken an extremely tough approach towards the cryptocurrency market, imposing numerous fines and enforcing strict policies to make industry players comply with regulations.
Nevertheless, Despite his aggressive regulatory stance on cryptocurrencies, Gensler has, for the most part, remained mum on several key issues that digital asset advocates have long been talking about.. For example, the SEC has yet to clarify which cryptocurrencies can be considered securities, stating time and time again that most cryptocurrencies on the market today could be classified as such.
Gensler has also previously noted that there are already a plethora of laws that offer enough clarity regarding the regulation of the cryptocurrency market. In a recent interview with Bloomberg, he said that in order for crypto investors to get the protection they deserve, intermediaries such as cryptocurrency lending and trading platforms must adhere to compliance requirements set forth by the SEC:
“Nothing about the crypto markets is inconsistent with securities laws. Investors have benefited from nearly 90 years of well-crafted protections that provide investors with the disclosure they need and protect against misconduct such as misappropriation of client assets, fraud, manipulation, preemptive trading, fictitious sales and other conflicts of interest that harm investors and market integrity”.
Since April 2021, Gensler has fined a number of crypto companies and promoters for securities violations, and companies like BlockFi have had to fork out up to $100 million in fines for registration failures.
Similarly, in July, The SEC filed an insider trading lawsuit against a former Coinbase employee, alleging that a total of seven crypto assets offered by the trading platform were unregistered securities.. Not only that, according to the public filings, the agency is allegedly looking at the various processes employed by Coinbase in terms of choosing which cryptocurrencies to offer to its clients.
Critics keep taking aim at Gensler
Since he became head of the SEC, criticism of Gensler’s seemingly aggressive approach to regulating cryptocurrency has risen sharply. For example, at the end of last year, Coinbase CEO Brian Armstrong revealed that the SEC had prevented his company from launching a new feature that prevented users from earning interest on their crypto assets.
In this regard, the SEC issued a “Wells Notice” against Coinbase, which in its most basic sense is a document informing the recipient that the agency plans to take enforcement action against them.
To get a better view of the situation, Cointelegraph reached out to Slava Demchuk, CEO of a UK-based anti-money laundering (AML) service, AMLBot, and cryptocurrency wallet AMLSafe. In his opinion, Gensler and the SEC have not provided clear guidance for crypto companies on things like registration and compliance and have not been able to make crypto compliance attractive and accessible to market participants. He added:
“It seems like the SEC focuses on all the wrong things, and as a result, the cryptocurrency industry is suffering from cases like FTX. And while it’s easy to find a balance between regulation and innovation, I recognize that it’s important to introduce regulations as soon as possible; otherwise investors and users will lose confidence in the industry.”
A somewhat similar view is shared by Przemysław Kral, CEO of cryptocurrency exchange Zonda Global, who believes that Gensler’s approach to cryptocurrency regulation certainly raises many questions, especially in light of recent market turmoil.. He told Cointelegraph that because Gensler’s actions had already been called into question in the months since FTX’s collapse, the ongoing criticism against him is being further validated.
“As the key person responsible for protecting US clients against securities fraud, there is no doubt that his approach has failed to some extent. Any regulatory framework that does not protect clients in the first place must be seen as unethical in order to promote the growth of a sector,” Kral said.
Legislators are not happy either
With a series of crashes—FTX, Celsius, Vauld, Voyager, and Terra—over the past six-odd months, the overall effectiveness of US cryptocurrency regulations has been called into question by a number of prominent lawmakers, including US Representative Tom Emmer, who recently raised concerns about Gensler’s cryptocurrency oversight strategy.
Since the beginning of the year, Emmer has been quite critical of the SEC’s “indiscriminate and inconsistent approach” to the digital asset industry, noting that he had been contacted by representatives of several cryptocurrency companies and companies in early March. blockchain, who told him that Gensler’s elaborate requests for information were not only extremely burdensome and unnecessary, but were also having a direct effect on the innovation emanating from this rapidly evolving sector.
It should also be noted that Emmer recently asked the SEC to comply with the standards set forth in the Paperwork Reduction Act of 1980, legislation intended to reduce the overall amount of red tape imposed by the federal government on private businesses and citizens. “Congress should not have to learn the details of the SEC’s oversight agenda through stories planted in progressive publications,” he claimed.
Finally, at the beginning of September, Gensler introduced a new rule requiring all crypto intermediaries—including exchanges, broker-dealers, clearing agents, and custodians—to be registered with the SEC. This decision was met with much backlash, including from prominent Republican Senator Pat Toomey.
In his view, the SEC has failed to provide any kind of regulatory clarity for the cryptocurrency industry, while accusing the regulatory agency of “being asleep at the wheel,” especially as prominent projects like the Celsius Network and Voyager Digital have continued to collapse. like dominoes all summer long, leaving hundreds of thousands of customers without access to their hard-earned money.
Is the president’s future in jeopardy?
About eight months ago in March, former FTX CEO Sam Bankman-Fried met with Gary Gensler on a video call to try to get the defunct exchange a regulatory green light in the United States without facing the threat of any fines. (mainly for violating securities regulations).
And while the deal fell through, FTX’s fall from grace has called into question Gensler’s future at the helm of the SEC and his overall effectiveness, especially considering that Bankman-Fried gained access to Washington elites while running an offshore company that promoted risky trading schemes and tapped into client accounts to finance other investments.
In fact, Emmer claims that Gensler may have been in cahoots with Bankman-Fried and the rest of his team, tweeting on November 11:
Interesting. @GaryGensler runs to the media while reports to my office allege he was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly. We’re looking into this. https://t.co/SznowgcP6V
— Tom Emmer (@RepTomEmmer) November 10, 2022
Interesting. @GaryGensler goes to the media as reports from my office claim he was helping SBF and FTX work through loopholes to gain a regulatory monopoly. We are investigating this.
In essence, the FTX crash has launched a new level of investigation into Gensler’s crypto prospects. In this point, details of Gensler’s public meeting agenda containing multiple sessions with Bankman-Fried recently made their way online — some dating back to October, just a month before FTX’s crash — prompting many cryptocurrency enthusiasts to claim that Gensler may have been intimate with a potential criminal responsible for defrauding investors out of billions of dollars.
In fact, some people argue that if the SEC had settled with FTX, it would have given the latter a regulatory monopoly over the digital asset market and given Bankman-Fried the power to dominate the cryptocurrency exchange landscape.
What’s next for the SEC and cryptocurrencies?
With Gensler pursuing a highly regulated approach towards the cryptocurrency market, it looks like the next few months could be extremely tough for the industry. To get started, the two-year battle between the SEC and Ripple appears to be drawing to a close, with a ruling expected to arrive soon.
The case could have major ramifications for the broader market, as Ripple’s native cryptocurrency, XRP (XRP), is currently in the top 10 digital assets by total capitalization. The dispute between the SEC and Ripple began in December 2020, when the regulator argued in court that Ripple’s top executives had raised a whopping $1.3 billion by offering XRP as unregistered securities.
So, as we head into a future powered by decentralized technology, it will be interesting to see how Gensler and the SEC continue to navigate this rapidly evolving space, especially given the fact that the number of people investing in Cryptocurrency has grown at a rapid pace in the last two years.