In 2023, no regulator or law enforcement official has had such a significant impact on cryptocurrency. But have critics gone too far in their criticism of the SEC chairman?
In a year with so many regulators or enforcement officials influencing or shaping the cryptocurrency industry, assessing who are the most influential regulators or enforcement officials is a challenging job.
But impact isn't just measured through actions and impact. It is also measured by the reactions eligent, the responses obtained, and our memories of what we have said and what we have not said. By this criterion, there is only one real winner: SEC Chairman Gary Gensler.
The longtime regulatory former banker and academic has a tougher job in the field of cryptocurrency regulation in the United States: he manages the U.S. Securities and Exchange Commission, an independent federal market regulator tasked with protecting U.S. investors and regulating U.S. capital markets--- and the $1 trillion crypto industry is just a small part of that.
Gensler is a controversial figure both inside and outside of cryptocurrency circles. Politicians who disagree with his views and actions have introduced bills demanding the cancellation of some of the funding of his institution and the cutting of his salary.
"He can withdraw the SEC lawsuit against Ripple Labs, approve the nation's first Bitcoin exchange-traded fund (ETF), and provide clarity to businesses looking to launch and trade cryptocurrencies that comply with federal law without having to endure the SEC's expensive and time-consuming registration process," I wrote in 2021, when Gensler was first named to CoinDesk's "Most Influential" list.
In 2023, the SEC will partially win (or partially lose, depending on how you look at it) in the lawsuit against Ripple. Spot Bitcoin ETFs are still a dream for issuers and exchanges, but the chances of being approved right away are higher than ever. While the SEC has been issuing guidance (or at least proposed rules) and sharing some hints on how securities laws will be enforced in the cryptocurrency space, it hasn't quite met the industry's hopes for a custom model that would allow the vast majority of tokens to be traded on U.S. platforms (or treat these tokens as non-securities).
"I think progress has been made and the lawsuit is helpful," said an employee of a cryptocurrency company who does business with regulators. (hereinafter referred to as the first person)
This article interviewed a number of individuals who were allowed to remain anonymous because of their work at the agency. Two of them noted that cryptocurrencies, while interesting, are likely not one of the bigger issues for the SEC to deal with. In 2023 alone, the SEC issued rules or proposed rules addressing privacy laws, cybersecurity, conflicts of interest, climate disclosures, swap enforcement facilities, beneficial ownership, and more.
Cryptocurrencies are just a small part of this big task, the people said above. How do you balance it all when industry players and journalists are struggling to keep up?
Crypto enforcement
Rules aside, Gensler's vision of how cryptocurrencies should be regulated seems clear: if you're running a crypto trading platform — an exchange in industry parlance — and you've listed certain tokens, you'll need to separate the brokerage function, the settlement center function, and the exchange function. In the United States, cryptocurrency trading should be similar to other securities trading in the United States. The settlements with Beaxy and Bittrex, as well as the lawsuits against Coinbase, Binance, and Kraken, are all about fulfilling this basic idea.
The U.S. Securities and Exchange Commission, as an disclosure-based regulator, is responsible for protecting investors. His enforcement efforts must have gone too far, the person said. I think some of the criticism of his use of these enforcement actions as a publicity stunt is fair, but it is consistent with my belief that he has a difficult job.
One of the industry's main complaints about the SEC -- under Gensler and his predecessor, Jay Clayton -- is the use of enforcement actions in lieu of explicit rulemaking or guidance, which firms can use as a bright-line test. In an industry where it's not even technically feasible, the idea that crypto exchanges should compartmentalize these different types of businesses only further fuels the anger of federal regulators.
A second lawyer in the cryptocurrency space told the media that the tone from the top of the institution was "really important". Most of the complaints about Gensler are that he has substantive points, but he seems proud of the way he speaks to the industry.
"He has a clear policy agenda, which is what he cares about the most, and that's his credit, and he cares about it," the person said. To achieve his goal, he will be more brutal than other leaders.
In the cryptocurrency space, 2023 has been a difficult year. Just over 2 months ago, a former industry magnate was convicted of fraud and conspiracy in connection with the collapse of FTX. Before his exchange fell apart, Sam Bankman-Fried was active in Washington, D.C., meeting with Gensler and his Commodity Futures Trading Commission (CFTC) counterpart, Rostin Behnam, as well as influential lawmakers in the Senate and House of Representatives.
Two months ago, Binance, the world's largest exchange, admitted to violating multiple anti-money laundering and related laws in a lawsuit filed by multiple agencies, but not the SEC.
Billions of dollars have also been stolen from the industry's decentralized finance and other cryptocurrency projects around the globe over the past 12 months. While SEC regulations may not protect investors using DEXs outside the United States, some regulators are sounding the alarm about hacking and subsequent money laundering.
"If the industry wants to move forward, it needs to have a mechanism to get rid of violations," said a third person, another lawyer whose firm has business dealings with the Securities and Exchange Commission.
One of the many
Some of those interviewed argued that Gensler, as head of the U.S. Securities and Exchange Commission (SEC), also bore the brunt of public criticism of his institution.
I think he's been blamed a lot for something he didn't do. The Ripple incident was not brought by him. A third lawyer told the outlet: "I don't think the SPB rules were proposed by him either," referring to two controversial actions taken by the SEC over the past few years.
The first lawyer said: you have a person who is in the spotlight, but we forgot that a leader is not a leader without a good team.
The second person has a different view: while Clayton shares Gensler, who has repeatedly said that "many" cryptocurrencies look like investment contracts, Clayton, unlike Gensler, also says that the way forward is to do something that doesn't give the ecosystem peace of mind.
Beyond what the SEC enforcement actions have shown, this path forward remains very unclear.
"As an industry, it's really important to strike the right balance between bringing up professional differences that policymakers may not understand, and as an industry, I think we should do the same. We have a responsibility to help people appreciate this asset class. The first person said.