What are the guardians ipsos custodes? Who watches the guards?
The age-old issue is becoming increasingly important as the federal bureaucracy grows in both budget and size.
But as America's government grew, so did the influence of the Fourth Estate. Social media has enabled a new generation of citizen journalists to hold officials accountable by highlighting their past positions. And in recent weeks, the spotlight has been on Securities and Exchange Commission Chairman Gary Gensler.
While the SEC is hard at work on digital assets, congressmen have been pushing Gensler to move into cryptocurrencies for years. The contradictions between Gensler's past and present statements came to light thanks to the work of professional journalists and amateur investigators on Twitter. Together, this decentralized community keeps a watchful eye on the guards.
And what did you find? A remarkable development in Gensler's vision for cryptocurrencies. Below is a timeline of his long journey from industry ally to true foe.
Phase 1: Allies (2018-2020)
While Gensler has become an industry nemesis as a result of his recent law enforcement actions, it wasn't always that way. Many cryptocurrency leaders once viewed it as a forward-thinking regulator and friend of the universe, and with good reason. Before joining the SEC, Gensler spent three years in academia, where he built a reputation as a public leader who recognized the innovative potential of digital assets. Follow the following events:
2018
- Gensler had a conversation with a group of hedge fund managers about the political implications of emerging cryptocurrencies. In his words, he unequivocally stated that Bitcoin, Ether, Litecoin and Bitcoin Cash "are not securities". Since those tokens accounted for the majority of cryptocurrency trading volume at the time, he said: "Three-quarters of this market is probably not stocks."
- That same year, Gensler began studying digital assets at the Massachusetts Institute of Technology, where he also teaches courses on blockchain and money at the university. There he gave a speech where he openly addressed the question of whether cryptocurrency is a security or a commodity . Answer: "Both of them. I know a lot of people don't like this answer, but here we go."
2019
- Gensler spoke at a fintech conference in New York where he praised Algorand
ALGO: and its lead developer Silvio Micalli, Gensler's colleague at MIT at the time. Gensler called the Algorand project "excellent technology" and a very effective blockchain "You can do Uber."EXCELLENT! in." - According to Binance lawyers, Gensler offered to advise cryptocurrency exchanges that same year and even met with Binance CEO Changpeng Zhao for a special meeting in Japan. (To date, Gensler has not disputed the claim.)
2020
- Gensler will teach his final course on blockchain and money at MIT this fall. His speech, which is available online, leads many to believe that he will take an innovative approach to cryptocurrencies if they return to public service. With President Joe Biden winning the election, speculation is mounting that he will nominate Gensler to head the SEC.
Phase 2: Agnostic (2021-2022)
Of course, President Biden appointed Gensler as chairman of the SEC. Many leaders in the digital asset community welcomed the announcement, echoing Gensler's previous statements and praising various crypto projects. For example, Senator Cynthia Lummis tweeted: "Despite the SEC's reputation for being a black hole for innovators, Gary Gensler recognizes the potential of digital assets."
Indeed, the mood on Capitol Hill after Gensler took office was one of rosy optimism. However, soon after taking office, Gensler's attitude toward cryptocurrencies began to change.
2021
- In both press releases and public comments about digital assets, Gensler's tone has ranged from openness to skepticism and, in some cases, hostility.
- The SEC chairman has begun hinting at the need for more regulation, calling cryptocurrencies a "wild west" fraught with fraud and abuse. He even went so far as to say: "I think we have a cryptocurrency market right now where a lot of tokens are probably unlisted securities."
- However, Gensler acknowledges that digital signage is in a state of regulatory limbo. And he said Congressional legislation would do much to bring more clarity to the industry, as "these exchanges that trade crypto assets have no regulatory framework with either the SEC or our sister agency, the CFTC."
2022
- Gensler reinforced his statement about the "wild west" narrative and his tone hardened. "Of the 10,000 or so tokens in the cryptocurrency market, I think the vast majority are securities," Gensler said in an address to all authorities in September. Just two months later, the FTX cryptocurrency exchange went bankrupt, confirming some of Gensler's claims.
Phase 3: The Enemy (from 2023)
After the failure of FTX, the gloves came off as Gensler's skepticism turned to opposition. Tired of waiting for Congress to pass legislation, his agency instead took a regulatory approach to enforcement, leading to a series of announcements and lawsuits from Wells against high-profile cryptocurrency exchanges.
There is only one problem. this new tactic required Gensler to revise many of his previous statements about cryptocurrencies.
in 2023
- Contrary to his claim in 2018 that some major cryptocurrencies are not securities and that many tokens have the characteristics of commodities, Gensler said in an interview with New York Magazine that "everything but Bitcoin" is a security.
- Contrary to his 2021 call for Congress to pass legislation to bring more clarity to the digital asset industry, Gensler said:
- While Gensler said in 2021 that digital assets did not have a clear regulatory framework at the SEC, he now says "the law is clear" and all cryptocurrency exchanges are required to register with the agency.
- Despite reports that Gensler offered cryptocurrency giant Binance an advisory role in 2019, his agency is now suing the company for alleged market manipulation and misappropriation of client funds. Meanwhile, the SEC is suing Coinbase for listing what the agency considers "unregistered securities."
- Speaking of unregistered securities, the SEC claims in the filing that ALGO is just that. Remember that ALGO is the original token of Algorand, the same protocol that Gensler announced as a breakthrough technology in 2019.
Gensler's anchoring strategy
So what's up? Why did Gensler's face suddenly change?
Most likely, there is a coherent strategy behind his contradictory claims.
As a seasoned bureaucrat, Gensler understands better than anyone how negotiations work in Washington. Effective policymakers use a negotiation technique called a "stop," where they deviate their initial proposal from the expected outcome. (Think Rep. Alexandria Ocasio-Cortez's "Green New Deal" or President Biden's "Build Better" plan at an initial cost of $3.5 trillion.)
These early proposals were often unpopular and had little chance of becoming law. But they set the tone for the negotiations and give the impression that the proposing side is making significant concessions, while politics inevitably takes center stage.
This is likely the reason for Gensler's action with the SEC. By taking a tough stance that "everything but Bitcoin" is a security, he set the stage for negotiations and forced Congress to act on the legislation.
Enter "Digital Products".
Congress' response to Gensler was the McHenry-Thompson bill, which (by not calling all but bitcoin a security) created an entirely new class of assets known as "digital commodities." Many existing tokens meet the definition of a digital commodity set forth in this law and therefore fall under the jurisdiction of the Commodity Futures Trading Commission, not the SEC.
The McHenry-Thompson bill is the most comprehensive coding framework ever introduced to Congress. He enjoys strong support in the House of Representatives, but could face significant opposition in the Senate, where Democrats have shown Gensler deference on many digital asset issues. So, if the bill passes this Congress ( if it's a big one), it's likely to fail.
Another option for supporters of the bill is to hope for a more cryptocurrency-friendly Congress in 2025. However, that suggests the industry can weather another 18 months of heavy hitting from the SEC. The drug strategy is dangerous under any circumstances, but especially against a powerful fighter like Gary Gensler.