Good day everyone,
I hope you are all having a good day, welcome to CryptoGod-1's blog on all things crypto. In this post I will be looking at the legacy of outgoing Securities and Exchange Commission (SEC) chair Gary Gensler.
Gensler’s Crypto Legacy
A man known for his agenda against the cryptocurrency industry, Gary Gensler was often viewed as public enemy number one. His time as chair of the Securities and Exchange Commission (SEC) is nearing its end and was often viewed as a messy affair. Many considered him an enemy within the crypto industry due to the regulator pursuing a strong stance and countless lawsuits against companies and individuals within the space.
Gensler was once a lecturer at MIT regarding digital assets and blockchain, but has tarred most of this sector with his comments from him of it being a “Wild West” that was rife with fraud. The Biden administration appointee regularly overreached in his position and the courts had to strike down several controversial SEC rules. Gensler was often accused of dragging his heels when it came to approving exchange-traded funds based on Bitcoin’s spot price by repeatedly delaying decisions on applications from the likes of BlackRock. The commission suffered a setback when an appeals court concluded it had failed to give clear reasons for rejecting an ETF proposal put forward by Grayscale.
One of the biggest criticisms of the SEC under the leadership of Gensler was how it pursued an approach of 'regulation by enforcement' instead of setting out clear regulations. Last Thursday Gensler announced he would be stepping down from the SEC on January 20, the date of President-elect Trump’s inauguration. He posted the following on 'X':
“The SEC is a remarkable agency. It has been an honour of a lifetime to serve with them on behalf of everyday Americans and ensure that our capital markets remain the best in the world.”
During his tenure Gensler left quite the stamp and legacy on the crypto community. Below I will look at some of the more interesting moves made during his time as chair of the SEC.
Lack of Legislation
In general it is accepted that regulation follows legislation but it is accepted that Gensler was often regulating without much help from Congress. Since the creation of Bitcoin legislators have managed to pass precisely no new laws covering digital assets. During his tenure Gensler rarely if ever pushed for new laws, although it is those same people in Washington now rejoicing Gensler’s exit which were the same ones who have long ago failed the cryptocurrency industry, at least legislatively speaking.
Clash of the Regulators
While the majority of countries have a single regulator that oversees both securities (stocks and bonds) and commodities (in large part derivatives like futures and options) markets, the United States has both the SEC for securities and the CFTC for commodities. This complicated matters in terms of cryptocurrency as it added to the uncertainty and confusion. While some cryptocurrencies have been deemed commodities, for example Bitcoin, others are simply viewed as commodities by regulatory bodies. This uncertainty and lack of clarity and it is generally accepted that while the SEC and CFTC act differently, being under the regime of the SEC is more difficult.
A Champion for Investors
While there are many harsh critics against Gensler, it is difficult to argue against the fact that under his leadership the SEC focused on actions against insider trading, financial misstatements, and schemes targeting retail investors. He has a relentless attitude towards market transparency and fairness and his efforts to shorten trade settlement cycles from T+2 to T+1 are seen as a significant step toward reducing market risk and improving efficiency.
A Demon for Crypto
Many critics of Gensler saw him as a demon in the cryptocurrency space. He was the antagonist, and the numerous SEC lawsuits against Coinbase and Ripple sent shockwaves through the industry with the Commission accusing the companies of operating without proper registration. He regulation by enforcement approach drew plenty of criticism, and many if not all of the crypto community were delighted to see him tendering his resignation. He will not be missed and while many feel a change of management will bring about a new and clear regime, not all is clear cut and certain for the future. His departure will be seen as symbolic, and the end of what is considered an unnecessarily combative relationship between the SEC and the crypto industry.
Some of the most clear cut cases during Gensler's time as chair of the SEC were:
Ripple
This was one of the most significant cases in crypto history. Ripple vs the SEC raised key questions about how digital assets should be regulated under United States securities laws. This all began back in December 2020 when the SEC filed a lawsuit against Ripple. They also filed lawsuits against Ripple CEO Brad Garlinghouse, and co-founder Chris Larsen.
The lawsuits accused Ripple of conducting an unregistered securities offering through the sale of XRP. It claimed the company had raised a total of $1.3 billion unlawfully. Ripple were quick to contest these allegations and they argued that XRP functions as a decentralized currency in a similar way to Bitcoin and Ethereum. Neither of those are classified as securities by the SEC.
It took until July 2023 for Judge Analisa Torres to rule that Ripple did nothing wrong in terms of their public sales and they did not violate any securities laws. The court did deem that Ripple’s institutional sales were in violation of securities regulations, marking a legal win for the SEC. Ripple was ordered to pay a $125 million fine in August 2024. Both sides appealed back in October, with the SEC challenging parts of the ruling, while Ripple filed a cross-appeal.
The case continues, with the U.S. Court of Appeals instructing the SEC to complete its briefs by January 15, 2025.
Coinbase
Back in June of 2023 the SEC sued Coinbase under the leadership of Gensler. They accused the exchange of offering unregistered securities to U.S. investors through its platform, wallet services, and staking programs.
The argument from the SEC was that several tokens listed on Coinbase met the securities criteria under U.S. law and required proper registration. However, Coinbase claimed to have sought regulatory clarity from the SEC for months without the agency ever providing clarity or actionable feedback. The company maintains that its activities are lawful and adhere to existing regulations.
The CEO of Coinbase, Brian Armstrong, has been known for his criticism of the SEC's approach and called it “regulation by enforcement.” He has defended the company’s staking services as distinct from other crypto offerings targeted by the SEC.
In 2024 the case remains in litigation, with Coinbase pushing to dismiss some charges and challenge the SEC’s authority.
Binance
In June the SEC also filed a lawsuit against Binance for alleged violations of U.S. securities laws. The charges being laid at the exchange focused on Binance’s facilitation of trading digital assets like BNB and BUSD, which the SEC deems unregistered securities. The SEC also accused Binance of misleading investors about the independence of its U.S. operations and mismanaging customer funds.
Binance denied the allegations and argued that it has complied with regulations, especially in their activities conducted outside the U.S. The company also asserted that Binance.US operates independently from the global exchange which is contrary to the claims made by the SEC.
The case is ongoing, with Binance challenging the SEC’s overreach and demanding clarification of existing regulations.
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FTX
Possibly the biggest case of them all, the SEC took its case against FTX and founder Sam Bankman-Fried as one of the largest fraud cases in the history of financial regulation. Bankman-Fried faced allegations of diverting funds to cover trading losses, finance personal expenses, and making political contributions via FTX.
Following the collapse of FTX in November 2022, which was triggered by a liquidity crisis and the fall of its token FTT, the company left a bankruptcy debt of almost $8 billion in customer funds. The SEC, along with other agencies, charged Bankman-Fried with misleading investors and mismanaging assets.
In 2024 Bankman-Fried was sentenced to 25 years in prison while FTX is still in the process of restructuring. They are also in the process of a repayment plan to ensure that somewhere between $14.5 billion and $16.3 billion is redistributed to creditors and customers.
Kraken
Back in 2023 the SEC began to look into crypto staking programs. These allow users to lock up their assets in exchange for rewards, generally receiving more crypto tokens. The SEC views these services as investment contracts subject to securities law. A major case involved in this was Kraken, a U.S.-based crypto exchange, which was accused of offering unregistered staking services to U.S. customers. The company paid a $30 million penalty and agreed to cease offering staking services to U.S. users.
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Many can agree that Gensler’s SEC tenure was far from quiet. The commission managed to launch more than 2,700 enforcement actions while he was in charge, and this resulted in billions in penalties and disgorgements. A large amount of this was returned to harmed investors, but it is important to note that his measures also included speeding up trade settlements, tightening disclosure rules, and scrutinizing Special Purpose Acquisition Companies (SPACs).
While nobody in the cryptocurrency community will be sad to see him go, mainly due to his harsh and firm stance on the industry, he certainly had an interesting time as chair of the SEC. Many will agree that Gensler’s approach was heavy-handed and stifled innovation, but we can all look forward to a new era with Trump as president and a new chair for the SEC.
Have a great day.
Peace. CryptoGod-1.
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