SEC Chairman Gary Gensler Under Fire as Crypto Markets Await Regulatory Clarity

Abraham George Crypto Musings

Two major things have to happen for the crypto markets to take off. One is regulatory clarity and the other is institutional adoption. The latter will not happen without the former taking place.

One of the major hindrances to regulatory clarity to take place in the US has been the hidden agendas, incompetence, and high-handedness of one individual who happens to be the SEC Chairman.

His name is Gary Gensler and I have written many times about him in my past articles (scroll down to the end for those). He acts and makes rules like Tony Montana the character depicted by Al Pacino in the movie Scarface. He is corrupt and has a terrible track record in everything that he has been engaged with.

After repeated requests and demands by the Congress, he finally appeared before the House Financial Services Committee on April 18th. Last time he appeared before the committee was on Oct 05, 2021.

The meeting lasted 4.5 hours and I will spare you the pain of going through all the drama and theatrics that happened by summarizing it and also including a 19-minute video by a major crypto content creator Brad Khimes who has highlighted some of the Q&A sessions and how mad the congress has been with Gary Gensler.

If you have been watching enough of American politics and discussions with people in power like Gary Gensler and Janet Yellen you must have already noticed that they have mastered themselves in circular talk and trying to cover their position in moral platitudes. They will never give a “Yes” or “No” to a question.

Gensler was like a mouse and at times shivering, panicking, and stammering as the Congressmen were all coordinated and well prepared to put him on the spot. The attached videos are self-explanatory.

Gensler is a Democrat and was nominated to the position by President Joe Biden. Republican senators like Tom Emmers, Patrick McHenry, Warren Davidson, and Bill Huizenga were already expressing their frustrations with Gensler on social media and they spared no time in attacking him with their barrage of questions but what surprised me most was the questions put forward by the young Democrat senator from NY Ritchie Torres (video below). They were all relevant and intelligent questions but we never got a clear answer from Gensler.

With over 50 million Americans holding cryptos ( mostly millennials) Gensler is now a liability for the Democratic Party. There are more Congressmen and women from both sides of the aisle who are pro-crypto. Though it looks like Republican senators are more vocal about getting regulatory clarity.

This can become a major talking point for the upcoming elections in 2024 and it will be a blunder for the Democratic Party to follow the crusade of Senator Elizabeth Warren in banning cryptos. How she had colluded with Gensler before the Senate hearing is already in the public. She was not part of the House hearing.

It was evident right from the beginning the scale of Republican dissatisfaction with Gensler’s administration. Several points that were raised at the hearing are likely to become campaign platforms as it has publicly weakened the SEC chair’s credibility. This in itself could prompt the SEC to change its ways of rule by enforcement.

The House Financial Services Committee Chairman Patrick McHenry highlighted among other things, the inconsistency with which Glenser throws out crypto enforcement actions, asks for extra budget funding, and yet refuses to give clarity as to the application of securities laws to digital assets and their service providers.

It was last month Coinbase the most regulated and listed digital company on the NYSE received a ‘Wells notice’ from the SEC. This is a notice companies receive before regulatory action is taken. The SEC messaged Coinbase one of the most rule and law-following players in the industry that they were being targeted for their ‘earn’ feature.

Coinbase was approved to go public in April of 2021 by the SEC. At that time, the company clearly explained its “earn” product. And the SEC greenlit the IPO. But now years later, the SEC is coming after them for that same feature. The SEC had an opportunity to address the issue back then but didn’t say that there was anything wrong. How does that make any sense at all? Coinbase is just one example of many. The Ripple case is also very similar.

The only conclusion one can make is that the government is attempting to suppress the industry until the infrastructure is in place for a CBDC. Once that happens, digital assets will be allowed to come back and operate within the framework that the government sets.

However, this House hearing with the SEC Chairman gave Coinbase enough courage to fight back and even before the SEC can sue them, Coinbase has sued the SEC for not giving regulatory clarity. What’s good for the goose is good for the Gander.

McHenry pointedly asked Gensler in different ways if Ether ( ETH ) was a security, and every time Gensler dodged it by pointing to the Howey definition and avoided the question.

McHenry also attempted to get Gensler to acknowledge that the rules were not clear. Gensler continued to insist that they were abundantly clear but that he couldn’t say anything about any specific asset.

The biggest takedown on Gensler came from Tom Emmer and he showed no patience for any of Gensler’s reply. If you don’t watch anything else from the attached video just watch the 5 minutes questioning from Emmer.

Finally Republic Senator Warren Davidson after reciting a litany of failures by Gensler said that he would be introducing a bill to remove Gensler from office.

As he is a presidential appointee do not think the firing of Gensler will progress much but if there is enough bipartisan agreement think he could be impeached. Nonetheless, it highlights the gravity of having the wrong person holding such a high public office.

The US is clearly falling behind other centers like Japan, Singapore, Switzerland, the UK, Europe, and UAE which are all going out of their way to create a business-friendly crypto environment and make capital formation. While all this is happening the European Parliament has officially taken the lead in approving MICA ( markets in Crypto Assets regulation). This provides clarity on the regulatory framework in European Union. The tripartite mission of the SEC is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. That surely is not happening when it comes to digital assets in their true spirit.

As with most congressional hearings, the event was largely about making political points and grandstanding for the cameras. The Republicans no doubt has found these failures at the SEC to tap into the public consciousness in order to score points and shift the perception of the incumbents.

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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office, and a hedge fund.