Tuesday could be a critically important day for cryptocurrency regulation in the US. President Biden’s SEC chief, Gary Gensler, promised to rid cryptocurrency markets of “fraud” and “manipulation” even before being confirmed. And since taking office, he has promised to reform the patchwork of regulations currently governing the space.
While his intentions remain vague to the thousands of investors trying to parse his intentions – as Bloomberg pointed out, a team of analysts at Goldman dug through 29 hours of Gensler’s lectures at MIT (any interested parties can find the first in the series of Gensler’s lectures here) – Gensler offered a glimpse during an interview with Bloomberg that was published early Tuesday morning, hours before Gensler was expected to share his plans for the first time, and possibly approve the first US bitcoin ETF.
In what Bloomberg billed as Gensler’s “first extensive interview about the digital money craze”, the SEC chief said his interest in the subject of cryptocurrencies doesn’t mean he’s satisfied with the status quo. Gensler is apparently planning a “robust” regulatory framework designed to protect Americans who have caught the crypto bug.
Gensler is contemplating a robust oversight regime, centered on establishing safeguards for the millions of investors who’ve been stocking their portfolios with tokens. “While I’m neutral on the technology, even intrigued—I spent three years teaching it, leaning into it—I’m not neutral about investor protection,” says Gensler, who on Tuesday will give a speech about crypto at the Aspen Security Forum. “If somebody wants to speculate, that’s their choice, but we have a role as a nation to protect those investors against fraud.”
Part of Gensler’s plan involves lobbying Congress to expand the SEC’s powers over the industry.
Gensler has asked Congress to pass a law that could give the agency the legal authority to monitor crypto exchanges, but he says the SEC’s powers are already broad. There’s been much discussion over the years about which kinds of digital assets fall under the SEC’s purview. Some such as Bitcoin that act like currencies are considered commodities, not securities. But there are thousands of other coins, and Gensler believes most are unregistered securities that must comply with SEC rules.
At one point, Gensler offered an analogy to the automobile industry, arguing that increased regulation helped cars become more mainstream. Whether or not Gensler is hinting here about a potential bitcoin ETF is anybody’s guess.
Broadly he noted that technology has sparked economic progress throughout human history, and he sees a similar boost from digital assets. That may only come, however, with strong and thoughtful regulation. As an analogy, he says the automobile industry didn’t fully take off until governments laid out driving rules. Speed limits and traffic lights provided public safety but also helped cars become mainstream. “It’s only with bringing things inside—and sort of clearly within our public policy goals—that a technology has a chance of broader adoption,” he says.
While Gensler’s exact intentions remain vague, many in the crypto space remain hopeful that the SEC chief – who, as we noted above, has taught classes about crypto and blockchain – is “an ally” of the industry, and wants to see it change for the better. In one of the more helpful details, BBG said that Gensler has pushed the agency’s staff members to take a look at an array of potential policy changes. He says there are at least seven SEC initiatives looking at different crypto issues, including initial coin offerings, trading venues, lending platforms, decentralized finance, stable value coins, custody, and ETFs and other coin funds.
“I’ve asked the staff to use all of our authorities anywhere we can,” he says. Gensler says he thinks regulating crypto exchanges is perhaps the easiest way for the government to get a quick handle on digital token trading.
Gensler has also expressed concerns about DeFi and its most popular feature, peer-to-peer lending. If firms are advertising a specific interest-rate return on a crypto asset, Gensler says, that could bring the loans under SEC oversight. Any company that pols digital assets for any reason could be seen as akin to mutual funds, potentially allowing the SEC to regulate them, he said.
“While I’m neutral on the technology, even intrigued — I spent three years teaching it, leaning into it — I’m not neutral about investor protection,” said Gensler.
Bloomberg’s piece on the interview also included a bit of history of Gensler’s path to the SEC. Gensler was the financial chief of Hillary Clinton’s losing 2016 presidential campaign and afterward “he had the lonely job of closing up shop.” For Gensler, teaching about bitcoin was a way to pick up the pieces after the campaign’s historic failure.
The 63-year-old former Goldman Sachs partner traveled an unlikely path to becoming one of the government’s foremost cryptocurrency experts. It started in 2017, when as chief financial officer of Hillary Clinton’s failed presidential campaign he had the lonely job of closing up shop, paying off the final bills, and deciding what to do with the abandoned computers and office supplies. Like many of his shell-shocked former colleagues, Gensler was looking for something to do—and somewhere to sit out Donald Trump’s presidency.
The answer came from economist Simon Johnson, an MIT professor who encouraged Gensler to come to Cambridge, Mass., and teach. Looking to nurture a long-held interest in the intersection of technology and finance, Gensler jumped at the opportunity. Although he didn’t know much about digital tokens, he connected with people who were part of the university’s burgeoning Digital Currency Initiative and even audited a course in crypto programming. When he suggested MIT teach more about finance and digital money, he was given the job. Little did he know that in a few years he’d have a chance to put his academic studies to real-world use. “Life sometimes is a bit of serendipity,’’ he says.
During the interview with BBG, Gensler didn’t offer a timeline for implementing his new framework. It’s not really clear whether he will even outline his plans on Tuesday, or save that for a later date. After all, the SEC has 49 ‘non bitcoin’ policy priorities, including requiring corporations to disclose carbon emissions, something Gensler marked as a top priority last week.
On Tuesday, Gensler is set to speak at the Aspen Security Forum during a talk being moderated by WSJ reporter Paul Vigna, a reporter who has written books on the subject of cryptocurrencies. The talk begins at 1215ET.
Thanks for front-running my big day, @BW. 🙂
Want more on this? Chair Gensler and I will be talking about it at 12:15 ET today:https://t.co/FMcSxR8Rw7@AspenSecurity @GaryGensler https://t.co/Kf1aFqnu7p
— Paul Vigna (@paulvigna) August 3, 2021
To be sure, many in the crypto industry see Gensler as somebody with a higher level of understanding compared with most political appointees (or politicians). The hope is that increased regulation will lead to more adoption – and we imagine the entire community would embrace anything that makes the price go up.
But this all could backfire – even if the SEC does approve a bitcoin ETF. While there’s no indication that the US regulation will be anywhere near as strict as Beijing’s crackdown, with the Fed developing its own crypto, the government has every incentive to try and undermine bitcoin. Let’s hope the community isn’t being blinded by Gensler’s slick talk about “increased adoption.”
