When he was chairman of the Commodities Futures Trading Commission (CFTC), Gary Gensler developed a reputation as a tough regulator. According to a Bloomberg profile, his name became an expletive to many on Wall Street – to the delight of Elizabeth Warren and her allies in the Obama administration. He faces a similar assignment when it comes to cryptocurrencies and blockchain as he enters the SEC chairman role.
Gensler’s CFTC experience should stand the 63-year-old, whose “downtime pleasure” is dancing, as he takes over the Securities and Exchange Commission (SEC) chief’s job under the incoming Biden administration. As CFTC chief, Gensler was largely credited with bringing order to a derivatives industry that had run amok and, according to many observers, caused the financial crisis of 2008.
Key Takeaways
- Former CFTC Gary Gensler is tipped to become the next SEC chief.
- He has extensive experience that spans Wall Street, government regulation, and a stint teaching about cryptocurrencies and blockchain at MIT.
- Gensler’s appointment is good news for those clamoring for regulatory guardrails for the industry.
A Broad Perspective
As far as regulation is concerned, this is an especially critical juncture for cryptocurrencies and blockchain. Crypto prices are rising again as institutional investors warm up to the asset class. Coinbase, North America’s biggest cryptocurrency exchange by trading volume, has filed for an initial public offering (IPO) with the SEC. An increasing number of countries worldwide have launched or are considering the possibility of launching digital currency projects. And the SEC has filed a case against Ripple’s XRP (XRPUSD) – the third-biggest cryptocurrency by market capitalization – claiming that it is an unregistered security.
Gensler’s resume combines experience and a sophisticated understanding of Wall Street, government regulation, and cryptocurrencies and blockchain. He worked at investment bank The Goldman Sachs Group, Inc. (GS) for 18 years before shifting gears to serve various posts in the Clinton administration. In addition to shackling the runaway derivatives industry to a strict regulatory framework, he played a key role in drafting the Dodd-Frank Act – legislation that has shaped the financial services industry’s workings and revenues after the 2008 financial crisis – under President Obama. More recently, he taught a course on blockchain and cryptocurrencies at the Massachusetts Institute of Technology (MIT) and has commented extensively on various aspects of the industry.
The breadth of Gensler’s experience is good news for a crypto industry struggling to find its footing in a regulatory framework whose rules, at times, seem outdated to accommodate blockchain or cryptocurrency’s workings. Former SEC Chairman Jay Clayton was especially fond of quoting the rulebook to justify his agency’s actions. Gensler’s appointment injects a broader perspective than is currently available in the ossified discourse about frameworks for cryptocurrencies and blockchain.
Gensler as SEC Chief for Crypto
Gensler has alternated between censure and praise in his commentary on cryptocurrencies and blockchain. In a previous Coindesk op-ed, he referred to cryptocurrencies and blockchain as an “innovative irritant” and as a “catalyst for change.” He also discussed the need to bring the Federal Reserve into the modern payments era and recommended that digital currencies, such as Libra, be brought under SEC regulation to ensure investor protection. But he has come down hard on initial coin offerings (ICOs) and talked about bringing unregulated cryptocurrency exchanges under government agencies.
At an MIT conference in 2018, Gensler posited that Ripple’s XRP and Ethereum’s ether (ETHUSD) should be deemed securities. Since then, former commissioner William Hinman clarified that ether was sufficiently decentralized to not be counted as a security. Ripple’s XRP, however, is still under the SEC scanner. Back then, Gensler predicted that the courts would ultimately decide XRP’s fate as a security. That event is already in motion, and his agency will have a big hand in deciding its outcome.
In some respects, at least as far as cryptocurrencies and blockchain are concerned, Gensler’s job as SEC czar will be similar to his assignment at CFTC: bringing order to an unruly ecosystem. After the Glass-Steagall Act was repealed during the Clinton Presidency, the derivatives industry ballooned into a multi-trillion dollar Wild West. Gensler went after criminals and established tough rules to ensure protection for investors.
While the cryptocurrency ecosystem does not have the heft or trading volume of derivatives, it shares the leaky regulatory roof that allows criminals and unscrupulous characters to flourish and bars the entryway to institutional and retail investors. Gensler will have to marshal his experience and understanding of crypto and blockchain to bring order to the ecosystem while preserving its potential to reshape modern finance’s plumbing. In the process, his name may well become an expletive again for actors clamoring for less regulation of crypto markets.
