Gary Gensler is now head of the SEC. What comes next?

Quick Take

  • In the crypto world, Gary Gensler has been one of the most talked-about figures in government for many months, despite the fact that he hasn’t formally been in government at all yet. 
  • A moderate, Gensler is not likely to cut down on the SEC’s work getting token issuers to toe the line, but his interest in technology and financial data suggests serious interest in updating markets.

As The Block reported last week, Gary Gensler is now chairman of the U.S. Securities and Exchange Commission after being sworn into office.

Now at the helm of the agency that governs trading at the largest stock markets in the world, Gensler will obviously play a key role in the Biden administration's oversight of the U.S. financial services sector. His ascent to office comes during what might be called a period of heightened scrutiny, a state of affairs that came in the wake of controversy over the GameStop stock craze and the role of platforms like Robinhood and firms such as Citadel Securities, which play significant yet publicly invisible roles in the proverbial engine room of Wall Street. As Congress scrutinizing activities like naked short selling and payment for order flow, Gensler's agency comes into view -- particularly as the Biden administration seeks to take a potentially different tack compared to the Trump years. 

It's worth recalling that Gensler's last public-sector role was leading the Commodity Futures Trading Commission under President Barack Obama, enforcing the then-new Dodd-Frank Act in the wake of the Great Financial Crisis.

But what does Gensler's new job — and the specific issues he faces — portend for the world of crypto? 

Answering the above question is tough. It's a subject that the crypto industry has been mulling over since Gensler's name came up among Biden's potential picks for the incoming financial regulation team.

As noted by The Block's Mike Orcutt, Gensler brings to the table a deep knowledge base of the U.S. payments system. His outlook on blockchain technology as a whole seems to center around innovation in payments, given his past comments including those during a Senate confirmation hearing in early March.

According to Gensler, "these innovations have been a catalyst for change. Bitcoin and other cryptocurrencies have brought new thinking to payments and financial inclusion, but they’ve also raised new issues of investor protection that we still need to attend to."

That knowledge base may come in handy when Gensler next appears before Congress, where he'll undoubtedly be asked about the agency's tack on crypto — including by those with a less-than-nuanced viewpoint on the technology and its applications. So, "education" — a word that industry stakeholders, lobbyists and even members of the Congressional Blockchain Caucus itself have used to paint their mission — could come into play for the former MIT professor

Perhaps a more immediate consideration is the fact that Gensler will serve alongside Commissioner Hester Peirce, who has advocated for a more permissive U.S. regulatory stance for digital assets. Last week, Peirce went public with an updated version of her so-called token safe harbor proposal. 

When reached for comment about the timing of Gensler taking office and her proposal update, she told The Block:

"To kick-start the conversation, I proposed an updated version of my token safe harbor proposal yesterday that provides enhanced token purchaser protections and improved clarity for how tokens could be deemed non-securities."

And when asked about Gensler's confirmation, Peirce expressed hope that he will support her stated goal of providing more regulatory clarity for the crypto industry.

"I look forward to working with Chairman Gensler on the many issues facing the Commission, including crypto matters. I am hopeful that he will recognize the need to foster innovation and bring greater regulatory certainty to crypto," she told The Block. 

Yet Gensler is no crypto advocate, certainly relative to Peirce, who is in favor of reducing regulation writ large. In a 2019 conversation between the two at the MIT Bitcoin Expo, the two alluded to debates during Peirce's time working for Senator Richard Shelby (R-AL) and Gensler's time at the CFTC. "You won a lot of those battles, I have to say. Which is why we have such a big rulebook," Peirce joked.

"We did have that little thing called the financial crisis, y'know, 10 million people lost their jobs," Gensler responded.  

But despite a difference in views on the relative merits of "more" and "less" regulation, there are clearly many areas of overlapping interest — should the two find alignment on crypto issues, Gensler's term in office could lead to the sort of clarity currently sought by the U.S.-based crypto industry. Where he falls on specific proposals like the token safe harbor remains to be seen.

Still, Gensler isn't going to upend the SEC's positions on initial coin offerings. He has gone on the record, including in his lectures while teaching at MIT in 2018, in saying that he considered XRP to be a security issued by Ripple. Those comments are likely to be top of mind for those hoping Gensler will, for example, intercede in the agency's ongoing lawsuit against distributed ledger company Ripple, which was sued by the SEC last year for allegedly selling XRP in unregistered securities offerings.

The safe harbor proposal is different, as it aims to establish thresholds for registration of new token issuances below those of securities, provided those tokens can demonstrate sufficient decentralization after a time. It's perhaps easy to imagine that Gensler would have different ideas about those thresholds, but it's still a means of accountability for projects, which he could support. Peirce, at least, is pushing for the proposal to succeed as a major part of her policy portfolio.

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