Gary Gensler, chairman of the United States Securities and Exchange Commission (SEC), will step down early on January 20, coinciding with the inauguration of Donald Trump as the new president of the country. With his departure, a controversial era for bitcoin (BTC) and cryptocurrencies in general comes to an end, marked by a restrictive approach that was adopted to regulate the sector.

As soon as he took office in 2021, Gensler stated that his main objective was to protect investors and mitigate risks in the market. Although there was initially no fear or negative expectations, those first steps turned out to be only the prelude to prosecutions and legal proceedings.

One of the most controversial points of his tenure was his expansive approach to interpreting the term “securities” as established in the Securities Act of 1933. During his tenure, the SEC labeled a large number of digital assets as securities, forcing many companies in the sector to face costly legal proceedings or, in some cases, to withdraw from the US market.

In an interview published in May of this year, Gensler forcefully stated that, according to US law and the Supreme Court’s interpretation, “many tokens are securities.” It should be noted that companies in the sector have repeatedly asked the SEC, without success, to clarify how the Securities Act of 1933, intended to regulate the issuance and sale of securities, applies to the digital asset market.

The controversy gained momentum primarily due to a lack of regulatory clarity. This was due to divergent opinions on which cryptocurrencies should be considered securities. Despite this, the SEC moved forward with legal actions against several companies in the ecosystem, alleging that they sold unregistered securities.

To date, the SEC considers many tokens with crowdfunding mechanisms, such as an Initial Coin Offering (ICO), to be securities because buyers expect to profit from the efforts of the team behind the project. Classifying cryptoassets as securities has a significant impact on how they can be traded, sold, and regulated. If classified as securities, cryptocurrency exchanges would need to register as stock exchanges, which could impact the accessibility and efficiency of digital asset markets.

For all these reasons, Gensler was quickly perceived as hostile towards cryptocurrencies.

Lawsuits Against Companies in the Industry

In 2023, the SEC filed a series of lawsuits against major cryptocurrency companies such as Coinbase, Kraken, and Binance. These actions not only created an environment of legal uncertainty but also discouraged new players from entering the market. Following the collapse of FTX in 2022, the reputational damage to the industry was considerable. In an attempt to address what many agencies perceived as abuses and scams, more than 200 enforcement actions were carried out .

However, the SEC also initiated legal proceedings against lower-profile organizations, such as Impact Theory, accused of offering and selling non-fungible tokens (NFTs) deemed unregistered securities, raising approximately $30 million from hundreds of investors. In addition, the agency charged Quantstamp with being an ICO and sued influencer Richard Schueler, known as Richard Heart, for trading unregistered securities, including the Hex token.

In 2024, the lawsuits did not stop. The SEC filed a complaint against Chicago-based Cumberland DRW LLC, accusing it of operating as an unregistered dealer of crypto assets worth more than $2 billion, which were offered and sold as securities. The complaint stated that the company had been operating in this manner since March 2018.

By late last year, the situation was alarming. In November, 18 Republican attorneys general filed a lawsuit against the SEC, accusing it of overstepping its authority in regulating the cryptocurrency industry. The plaintiffs, from states including Kentucky, Texas, and Florida, argued that the agency had violated states’ rights to regulate their economies, interfering in their sovereignty by aggressively enforcing the law in a sector valued at $3 trillion.

There have been victories for the industry, though. As recently as June, Consensys reported that the SEC had closed its investigation into Ethereum, confirming that Ether is not a security, but a commodity.

The Ripple case is emblematic, as it has been a legal battle that has spanned over 4 years. In 2023, a judge ruled that Ripple’s sales of XRP to institutional investors constituted unregistered securities offerings, but that programmatic sales (on exchanges) and other uses of XRP were not securities. This was considered a partial victory for Ripple, as it implied that XRP was not a security in all contexts.

In October 2024, the SEC filed a notice of appeal against the ruling, seeking review in the Second Circuit Court of Appeals. The appeal does not challenge XRP's status as a non-security in programmatic sales, but instead focuses on other aspects of the court's ruling by keeping the case in place without final closure.

Criticism and Brakes on Innovation

The SEC's restrictive approach caused numerous startups and cryptoasset developers to seek refuge in countries with more flexible regulatory frameworks, such as Dubai or Singapore. This negatively impacted investment and employment within the industry.

Gensler was vocal and never missed an opportunity to criticize the cryptocurrency sector, but despite his consumer-protection-focused rhetoric, he never managed to present a clear and coherent regulatory framework. While he claimed his approach was meant to safeguard investors, his decisions lacked transparency and created uncertainty about how to actually comply with the rules. Despite having the tools to make a positive mark, Gensler chose to follow the path marked out by the system and by government criticism of bitcoin. He did not push for a regulatory framework that responded to current times, instead preferring to resort to the Securities Act – a scheme created during the Great Depression – to regulate crypto assets.

There were those who warned that this approach would not lead to positive results, but the SEC head was adamant. In testimony before the Senate Banking Committee in 2023, Gensler dismissed the objections and defended his decades-long experience in the financial sector, saying he had never seen a market so rife with abuse. He insisted that the SEC must act as a “vigilante cop” and maintain constant regulatory pressure on cryptocurrencies, underscoring the importance of current regulatory tools to combat fraud within the ecosystem.

It is worth mentioning that Commissioner Hester Peirce, who in recent years has built a reputation as a cryptocurrency advocate, was one of the officials who had the most disagreements with Mr. Gensler. Peirce, a Republican, believes that the government should limit its intervention in the economy, while Gensler, with a history linked to Democratic circles, has adopted more changing positions on various issues. In fact, Jay Clayton’s successor was not always so aligned with his current approach to cryptoassets; before being chairman of the SEC, the Democrat spent several years at the Massachusetts Institute of Technology (MIT), where he taught courses on digital assets.

In April 2024, Peirce harshly criticized the SEC's guidelines around cryptoassets, particularly Accounting Bulletin 121 (SAB 121), which prevents many banks from holding digital currencies on behalf of their clients. Peirce felt that these regulations do not protect investors and instead drive banks out of the business. SAB 121 would be repealed by Trump.

The truth is that Gensler received criticism from all quarters, so much so that seven US states formed a coalition to challenge the SEC's regulation of the industry, led by Iowa Attorney General Brenna Bird. These states argued that the agency was abusing its power and circumventing state laws to impose regulations without proper authorization from Congress.

A New Direction

Gary Gensler’s early departure opens up the possibility of a change in direction at the SEC, and many in the bitcoin community hope the next leadership will take a more balanced stance. The hope is that innovation will be encouraged, and regulatory clarity offered without stifling the growth of the sector. Against this backdrop, President-elect Donald Trump has nominated Paul Atkins, a staunch advocate of digital assets, as the agency’s future leader. However, the appointment still needs to be approved by Congress.

As for the outgoing SEC administration, it is leaving without an ounce of self-criticism. Proof of this is that just a few days ago Gensler took advantage of an interview with Bloomberg Television, and stressed that he only wanted to protect investors in an industry that he considers very similar to the Wild West. The economist claimed to have implemented around 100 measures related to cryptocurrencies, which were added to the 80 adopted by his predecessor, Jay Clayton. In addition, he again expressed that, in all his years dedicated to finance, he had never seen a sector so plagued by irregularities.

What Gensler of course did not address are issues such as the SEC hijacking an industry that should be under CFTC regulation. One example lies in a lawsuit filed in March 2024, when the US Commodity Futures Trading Commission (CFTC) legally charged the KuCoin exchange with operating a commodities trading platform without proper registration. This action highlighted the lack of regulatory clarity in the country, with the CFTC and SEC applying conflicting criteria for classifying cryptocurrencies.