Misunderstood SEC Chairman Gary Gensler: The "Iron Fisted Instructor" in the Crypto World

Original title: "A new perspective on the misunderstood SEC Chairman Gary Gensler"

Original author: Fu Ruhe, Odaily Planet Daily

When it comes to the "public enemy" of the crypto world, many people's first reaction is the U.S. Securities and Exchange Commission (SEC). Every time some projects or celebrities are targeted by the SEC, it will lead to a round of market declines. SEC Chairman Gary Gensler is even more "notorious."

Since taking office as SEC Chairman in April 2021, Gary Gensler has served more than half of his term. During his tenure, he frequently "fired" at the crypto industry, making regulatory remarks such as "the vast majority of tokens in the crypto market are securities, so the issuance and sale of these security-type crypto tokens will be regulated by securities laws." He also led cases against many well-known crypto companies such as Binance, Coinbase, Kraken and FTX.

All signs indicate that Gary Gensler seems to be full of prejudice against the crypto industry, but is the truth really as everyone "sees"? Odaily Planet Daily will take everyone to re-understand SEC Chairman Gary Gensler from a new perspective.

A Goldman Sachs-born MIT teacher turned into an "iron-fisted instructor" for cryptocurrencies

Gary Gensler's work experience: iron-fisted is his work style

Gensler was born in a Jewish family and was exposed to finance since childhood. After graduation, he entered the Wall Street giant Goldman Sachs step by step, and became one of the youngest partners of Goldman Sachs at the age of 30. He eventually worked at Goldman Sachs for 18 years.

In 1995, Goldman Sachs CEO Robert Rubin became the U.S. Treasury Secretary. Gensler followed Rubin to join the U.S. Treasury Department as Assistant Secretary of Financial Markets, officially starting his career.

Gensler has always been a staunch Democrat. In 2008, he provided advice to Obama's presidential campaign. Later, during Obama's presidency, he served as Chairman of the U.S. Commodity Futures Trading Commission (CFTO). At that time, the derivatives market was in a state of disrepair after the financial crisis. Gensler started with supervision and continuously introduced new regulations to help the US derivatives market rebuild market order. As a result, Gensler was called "one of the main reformers after the financial crisis."

After Obama's term, Gensler also served as the chief financial officer of Hillary's 2016 presidential campaign. With Trump's victory, Gensler, who had no hope of a career, went to the Massachusetts Institute of Technology (MIT) to teach the course "Blockchain and Currency".

During the course, Gensler encouraged students to participate in the blockchain industry and praised blockchain for changing lives, using Algorand as an example. "Maybe in five years, you can build Uber or Lyft on the blockchain... By then, the blockchain will have a certain strength in performance, such as Silvio Micali's Algorand, who is a Turing Award winner at MIT. We worked together. Silvio has great technology and performance. You can develop Uber on (Algorand)."

In 2020, Biden won the election that year, and Gensler was nominated by Biden as the chairman of the SEC, which opened up his entanglement with the crypto industry.

It is not difficult to find from Gensler's work experience that his tough regulatory style today comes from his tenure as chairman of the CFTO. Perhaps in his mind, the current crypto industry has similarities with the derivatives market after the financial crisis. But the author believes that his love for the crypto industry during his teaching period at MIT is not a disguise. Such a contradictory experience appeared in Gensler, which must have caused the public to misjudge him.

Counting Gensler's enforcement actions against the crypto industry during his tenure

From 2021 to 2024, the SEC led by Gensler took many important enforcement actions against the cryptocurrency industry. Here are some detailed cases:

Ripple Labs:

Case Summary: The SEC filed a lawsuit against Ripple Labs in December 2020, accusing it of unregistered securities offerings by selling XRP tokens. The case continued in 2021, with Ripple arguing that XRP is not a security.

Result: In the court ruling in July 2023, Ripple won a certain victory, and some of its actions were determined not to be securities, but there were still violations; the SEC then asked Ripple to pay a fine of nearly $2 billion, and is still awaiting the final judgment.

Coinbase:

Case Summary: In September 2021, the SEC warned Coinbase that its planned lending product could constitute an unregistered security and threatened to sue Coinbase.

Outcome: Coinbase canceled the launch of its lending product and continues to work with the SEC to ensure compliance of its other products.

BitConnect:

Case Summary: The SEC filed a lawsuit against BitConnect and its founder, accusing them of operating a Ponzi scheme worth more than $2 billion.

Outcome: Multiple senior executives of BitConnect were indicted and the case is still ongoing.

BlockFi:

Case Summary: The SEC accused BlockFi of offering an unregistered crypto lending product that constituted a security.

Outcome: BlockFi agreed to pay a $100 million fine to settle, with $50 million paid to the SEC and another $50 million paid to state regulators.

Kraken:

Case Summary: The SEC charged Kraken’s staking program with constituting unregistered securities.

Result: Kraken agreed to pay a $30 million fine to settle.

FTX and SBF (Sam Bankman-Fried):

Case Summary: In November 2022, FTX went bankrupt due to a liquidity crisis, exposing financial management and risk control problems. In 2023, SBF was accused of fraud and misappropriation of funds.

Result: SBF faces multiple legal actions and the case is still ongoing.

Binance and CZ (Changpeng Zhao):

Case Summary: The SEC launched an investigation into Binance and its founder CZ, accusing them of defrauding investors and not registering their exchange business.

Result: Binance agreed to forfeit $2.5 billion and pay a criminal fine of $1.8 billion, for a total of $4.3 billion. CZ was sentenced to 4 months in prison.

Genesis and Gemini:

Case Summary: The SEC filed a lawsuit against the cryptocurrency lending platform Genesis and the crypto exchange Gemini, alleging that they violated securities laws by attracting investors through unregistered crypto lending products.

Result: The case is still ongoing.

Terraform Labs and Do Kwon:

Case Summary: The SEC filed a lawsuit against Terraform Labs and its founder Do Kwon, accusing them of defrauding investors and misleading the public, involving the issuance and sale of unregistered securities.

Result: The case is still ongoing, and Do Kwon and Terraform Labs face serious legal consequences.

From the above-mentioned related cases, the SEC led by Gensler has almost zero tolerance for pledge and lending products launched by crypto exchanges, followed by accountability for related black swan events, and finally anti-fraud and anti-money laundering related cases. The above three types of law enforcement actions are more easily accepted by the crypto industry and are also conducive to the development of the industry. However, the SEC has aroused public doubts on the issue of whether tokens are "securities".

The current SEC judgment standard is derived from the Howey Test, which was formulated based on the case "SEC v. W.J. Howey Co." decided by the U.S. Supreme Court in 1936. The main principle of the Howey Test is that if all the following conditions are met, the transaction will be considered a securities offering:

· Investors invest money or other fungible assets;

· Investors' investments are in a common enterprise;

· Investors expect to rely on the efforts of a third party (usually a company or other entity) to obtain a return on their investment;

· Investors' returns depend primarily on the efforts of a third party.

These four conditions usually need to be met in full, but tokens are actually more complicated. They may meet the above conditions in some activities, but not in some activities, which creates an embarrassing situation of "one person has his own reasons, and the other has his own reasons". Gensler has therefore been ridiculed by the crypto industry.

Gensler is still promoting the integration of the crypto industry into mainstream finance despite his bad reputation

The crypto industry’s views on Gensler are mostly derogatory, and it is common to see him gradually ruining the crypto industry. Basically, most articles criticize Gensler and the SEC from this perspective.

Is this perspective really correct? In the author’s opinion, such views are biased. Throughout the 15-year history of the crypto industry, the SEC’s role in promoting the crypto industry has not been as good as Gensler’s three years in office.

Count down the major events that have had a positive impact on the crypto industry at Gensler from April 2021 to the present.

· In October 2021, the first Bitcoin futures ETF was listed.

· In January 2024, the first Bitcoin spot ETF was listed.

· In May 2024, the 19 b-4 document approving the Ethereum spot ETF was approved. (Several institutions have stated that Ethereum spot ETF products will be launched this month)

The above three major events are of extraordinary significance to the crypto industry.

The author gives an example from personal experience. When people around me asked me what industry I was in before, and mentioned words such as encryption, virtual currency, and Bitcoin, they would warn me that "there is something wrong with this industry, find a serious industry as soon as possible", and the author could only smile. After all, judging from the attitudes of all parties and the current status of the industry, it is indeed difficult to refute. But this year, when such issues are mentioned, people around can think of the launch of Bitcoin spot ETFs in the United States and Hong Kong's positive attitude towards Web3. They all ask the author about the relevant dynamics of the industry, and do not need to be shy when talking about related projects.

From the above experience, the SEC's approval of the cryptocurrency ETF is an endorsement for the crypto industry to officially enter the mainstream world, allowing the crypto industry to appear globally in a formal capacity. Based on this alone, Gensler is enough to have a place in the history of the crypto industry.

Perhaps some people also think that even if someone else serves as the chairman of the SEC, they will also approve the cryptocurrency ETF under the current trend. But isn't this kind of view "after the fact"? How the current trend is formed and whether the role of the SEC in approving cryptocurrency ETFs is underestimated, this cannot be measured. But the mainstream world's funds can enter the crypto industry, isn't it also based on security? Compared to such statements, the author believes that these mainstream funds will believe more in the security brought by national endorsements.

At the same time, most people believe that the SEC led by Gensler has also brought certain negative impacts to the crypto industry, especially the decline in the market and the development of related projects. But looking at the SEC's law enforcement activities, some of them are black swan events, such as FTX, BitConnect, etc. This kind of event is "paper cannot cover fire" and will inevitably cause market fluctuations. The rest are mostly security token judgment issues. From a side reaction, this is also the mainstream world trying to form a framework for the crypto industry. Although the final judgment of the framework is still inconclusive, this is also the only way for Gensler and the SEC to actively try.

As for the short-term market fluctuations, they will be smoothed out by time. After all, they are just a small ups and downs in the market trend. However, the cryptocurrency ETFs approved by the SEC in recent years can leave a glorious mark in the long river of history.

In general, Gensler may have camps, selfishness, external pressure and even interests, but the author prefers to believe that he is using his own way to make the crypto world integrate into the mainstream world as soon as possible.

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