Forbes: Gary Gensler's Three Phases from Crypto Ally to Industry Foe

Source: Sam Lyman, Forbes

Translation: Luffy, Foresight News

  Washington D.C. - SEC Chairman Gary Gensler has established close connections with members of both the Senate and the House of Representatives...   

Who monitors the monitors?

However, as the US government develops, the influence of the fourth tier is also expanding. Social media allows a new generation of citizen journalists to hold public officials accountable by scrutinizing their past positions. In recent weeks, attention has focused on Gary Gensler, the chairman of the US Securities and Exchange Commission (SEC).

With the SEC increasing its efforts in regulating cryptocurrencies, members of Congress have been pressuring Gensler to change his stance on cryptocurrencies. Thanks to the work of professional journalists and amateur detectives, the contradictions between Gensler's past and present statements have surfaced on Twitter. This decentralized community is diligently monitoring the regulators.

What did they discover? Gensler's views on cryptocurrency have undergone a significant change. Here is a timeline of his long journey from industry ally to opponent.

Phase One: Allies (2018-2020)

Although Gensler's recent enforcement actions have made him a public enemy in the industry, this has not always been the case. Many cryptocurrency enthusiasts once saw him as a forward-thinking regulator and friend. Prior to taking over the SEC, Gensler worked in academia for three years, where he gained a reputation as a public leader and saw the innovative potential of cryptocurrencies.

2018

Gensler gave a speech on the policy impact of emerging cryptocurrencies in front of a group of hedge fund managers. He explicitly stated that Bitcoin, Ether, Litecoin, and Bitcoin Cash "are not securities". As these tokens accounted for the majority of cryptocurrency trading volume at the time, he said that "three-quarters of this market may not be securities".

In the same year, Gensler began researching digital assets at MIT and taught blockchain and cryptocurrency-related courses at the university. There, he gave a speech openly discussing the question of whether cryptocurrency is a security or a commodity. His answer was: "Both. I know this is not a popular answer for many people, but this is our current situation."

2019

Gensler spoke at a financial technology conference in New York City, where he highly praised Algorand and its chief developer Silvio Micali (who was Gensler's colleague at MIT at the time). Gensler called Algorand's project "a great technology" and said that blockchain is very efficient, "you can create an Uber on it."

According to a Binance lawyer, in the same year, Gensler actively applied to become an advisor for the cryptocurrency exchange and even had a special meeting with Binance CEO Zhao Changpeng in Japan. (So far, Gensler has not refuted this claim.)

2020

Gensler taught his last course on blockchain and cryptocurrency at MIT. His lecture can be watched online, which has led many to believe that if he re-enters public service, he will adopt a strategy that supports innovation in cryptocurrency. With Biden elected as president, more and more people are speculating that he will appoint Gensler as the chairman of the US Securities and Exchange Commission.

Second Stage: Skeptics (2021-2022)

As expected, President Biden has appointed Gensler as the SEC Chairman. Given Gensler's past public statements and praise for various cryptocurrency projects, many in the crypto community are cheering his appointment. For example, Senator Cynthia Lummis wrote on Twitter, "Although the SEC has a reputation as an innovation black hole, Gary Gensler has recognized the potential of cryptocurrency assets."

In fact, with Gensler's appointment, the mood at the Capitol was optimistic. However, shortly after taking office, Gensler's attitude towards cryptocurrency began to change.

2021

In news statements and public comments related to cryptocurrency, Gensler's tone has shifted from openness to skepticism - in some cases even hostility.

The Chairman of the US Securities and Exchange Commission has begun to express the need for strengthened regulation, calling cryptocurrency a "Wild West" full of fraud. He further stated, "I believe that many tokens in our current cryptocurrency market may be unregistered securities."

Despite this, Gensler acknowledges that the cryptocurrency industry remains in a state of regulatory uncertainty. He states that legislation from Congress will help provide greater clarity for the industry, as "these cryptocurrency assets are not regulated within the SEC or our sister agency, the CFTC, for their exchanges."

2022

Gensler emphasizes the narrative of "Wild West" and his tone becomes stronger. "I believe that the vast majority of the nearly 10,000 tokens in the cryptocurrency market are securities," Gensler said in a speech to the entire institution in September. Just two months later, the cryptocurrency exchange FTX went bankrupt, proving some of Gensler's claims to be correct.

Third Stage: Opponents (2023-Present)

After FTX's defeat, Gensler's suspicious attitude turned into opposition. The SEC grew tired of waiting for Congress to pass legislation and instead took an enforcement approach, initiating a series of Wells Notices and lawsuits against high-profile cryptocurrency exchanges.

Only one question: The new policy requires Gensler to "swallow" all of his previous statements on cryptocurrency.

2023

Gensler said in an interview with New York Magazine that "everything except Bitcoin" is a security, which is a clear departure from his statement in 2018 that several major cryptocurrencies are not securities and many tokens have commodity features.

Gensler said that "the lack of regulatory compliance in the cryptocurrency market is not due to a lack of transparency," which contradicts his own demand for Congress to pass legislation to increase transparency in the cryptocurrency industry in 2021.

Although Gensler claimed in 2021 that there was a lack of clear regulatory framework for cryptocurrencies at the SEC, he now believes that "the law is clear" and all cryptocurrency exchanges must register with the SEC.

Despite reports that Gensler was proposed to serve as an advisor to the cryptocurrency giant Binance in 2019, the SEC is currently suing the company for market manipulation and misuse of customer funds. The US Securities and Exchange Commission is also suing Coinbase, alleging that the latter listed "unregistered securities".

Speaking of unregistered securities, the SEC claims in the lawsuit that ALGO is exactly that type of security. Please note that ALGO is the native token of Algorand, a protocol that Gensler praised as a breakthrough technology in 2019.

Gensler's "anchoring strategy"

So why did Gensler suddenly change his attitude?

His contradictory remarks may have a coherent strategy behind them.

As an experienced bureaucrat, Gensler understands the workings of Washington negotiations better than most. Effective policy makers use a negotiation technique called "anchoring," where their initial proposal often differs greatly from the expected outcome. (Think of Representative Alexandria Ocasio-Cortez's "Green New Deal" or President Biden's initial $3.5 trillion price tag for the "Build Back Better" plan).

These initial proposals are often strange and have little chance of becoming law. However, they set a reference point for negotiations and make the proposing party appear to be making significant concessions, as policies inevitably move towards the center.

This may be the logic behind Gensler's SEC action. By taking a tough stance that "everything except Bitcoin" is a security, he set a negotiating framework that forced Congress to take action on legislation.

加密货币更可能是「数字商品」

Cryptocurrencies are more likely to be "digital commodities"

The response of Congress to Gensler is the McHenry-Thompson bill, which proposes a new asset class called "digital commodities" (far from marking everything except Bitcoin as securities). Many existing tokens meet the definition of digital commodities in the bill, so they will fall under the regulatory jurisdiction of the Commodity Futures Trading Commission (CFTC) rather than the Securities and Exchange Commission (SEC).

McHenry-Thompson Bill is the most comprehensive cryptocurrency framework in the history of Congress. It has received strong support in the House of Representatives, but may face strong opposition in the Senate. Democrats have shown respect for Gensler on many issues related to cryptocurrency. Therefore, if this legislation is passed in this Congress, it is likely to not appear in its current form.

The supporters of the bill have another option, which is that Congress will be more friendly to cryptocurrency by 2025. However, this is based on the premise that the industry can withstand another 18 months of harsh crackdowns by the SEC. In any case, the rope-a-dope tactic (note: a boxing tactic that uses the advantage of the strong to counterattack) is risky, and the risk is even greater when facing powerful boxers like Gary Gensler.

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