Little Guys Suffer as Gary Gensler Upholds Wall Street Interests

The SEC’s Actions Against Crypto Sector

Even the most ardent crypto advocates could comprehend why the Securities and Exchange Commission might take enforcement action against the crypto sector. The events of the past year – ranging from Three Arrows Capital’s collapse to the deception at FTX – were sure to provoke some examination, and the industry has always been too tolerant of blatant charlatans.

The recent enforcement actions by the SEC and other U.S. agencies do not meet the standard of protection expected. Upon closer inspection, from the banking crackdown earlier this year to the numerous regulations imposed through enforcement, it appears the U.S. government is taking action to safeguard the financial services industry from disruption.

Exhibit A of this phenomenon is the SEC’s substantial lawsuit against Coinbase, which has long been viewed as a reputable entity in the cryptocurrency world. Numerous large asset managers, Fortune 100 companies, and even the U.S. government have all utilized its services without raising any issues regarding its integrity. In contrast to FTX, Coinbase has never deceived its clients. It was not established in an offshore tax haven and has never been the victim of a cyberattack. In fact, the company has expressed its willingness to be regulated and has even taken legal action against the SEC to get clarity on how to do so.

Gary Gensler’s Puzzling Stance on Crypto

Crypto enthusiasts are misguided in their focus on Gary Gensler.

The reward for this? A 100-page lawsuit full of inconsistencies, such as some layer-1 tokens being classified as securities while others are not. Think of a town that won’t tell you what the speed limit is yet regularly hands out speeding tickets. Nobody would take such a place seriously. Despite SEC Chair Gary Gensler repeatedly informing us that his agency has the necessary authority to make that determination, we still don’t know if Ether (ETH) is a security.

New technologies often conflict with established regulations, and regulatory bodies can initially find it difficult to comprehend startups due to a lack of knowledge about the technology. Gary Gensler, however, does not have this excuse as he was a visiting instructor at MIT’s Digital Currency Initiative and taught a widely respected course on blockchain. So, how did he transition from that level of knowledge and conviction to stating on CNBC that crypto is not necessary?

Gensler is not shielding American investors, who will soon have no service providers, nor the crypto companies that are shifting to more supportive countries. Instead, it is the Wall Street incumbents that are vulnerable to the disruption caused by crypto which are being protected. This is made evident by the increasingly unpredictable regulatory approach.

Implementing stringent regulations can create formidable barriers to entry for incumbents – the hidden truth of each highly regulated sector. Big companies may express grievances in public about the expense of adhering to the rules, yet internally they are grateful for the competitive edge of being on the right side of the regulatory line. This is why highly regulated industries such as finance or healthcare rarely see changes in leadership.

Whose Interests is Gensler Safeguarding?

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Preserving the current state of affairs is the only sensible explanation for why the SEC is opposed to Congress introducing legislation to clarify matters. Gensler has consistently stated that the securities laws from the 1930s and the Howey test, which was a ruling made before the invention of the transistor, are sufficient for his agency to regulate cryptocurrencies. Other countries do not adhere to this stance, possibly because their older service providers are not as powerful as those in the United States.

Some regulators within the U.S., including other SEC commissioners, have voiced their dissent with this approach.

Five years ago, when speaking at an MIT blockchain event, Gensler asserted that “blockchain technology” had the “potential to revolutionize the world of finance.” He continued, “It could decrease costs, risks, and economic rents in the financial system.”

Though the technology has remained the same, Gensler has altered over the years. It is only reasonable to inquire whose interests he is safeguarding.