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

Original: Odaily Planet Daily

Author: How

When it comes to the "public enemy" in the crypto world, many people's first reaction is to think of 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."

Gary Gensler has served as SEC Chairman since April 2021. 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 fact really as everyone "sees"? Odaily Planet Daily will take you to re-understand SEC Chairman Gary Gensler from a new perspective.

A Goldman Sachs-educated MIT teacher turned into an encryption "iron fist instructor"

Gary Gensler's work experience: He has an iron fist

Gensler was born into a Jewish family and was exposed to finance from a young age. After graduation, he went to work for the Wall Street giant Goldman Sachs step by step. At the age of 30, he became one of the youngest partners of Goldman Sachs at the time and eventually spent 18 years of his youth at Goldman Sachs.

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 for 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 the chairman of the Commodity Futures Trading Commission (CFTO). At that time, the derivatives market was in a stage of reconstruction 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 level of performance, such as Silvio Micali's Algorand, who is a Turing Award winner at MIT. We have worked together. Silvio has great technology and performance. You can develop Uber on (Algorand)."

Biden won the 2020 election, and Gensler was nominated by Biden as SEC Chairman, which started his entanglement with the crypto industry.

It is not difficult to find from Gensler's work experience that his current tough regulatory style originated from his time 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 in Gensler must have caused the public to misjudge him.

A breakdown of Gensler’s enforcement actions against the crypto industry during his tenure

From 2021 to 2024, the SEC, led by Gensler, has taken 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, alleging that it conducted an unregistered securities offering 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 US$2 billion, and is still awaiting the final judgment.

Coinbase：

Case Summary: In September 2021, the SEC warned Coinbase that its planned lending products may constitute unregistered securities and threatened to sue Coinbase.

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

Result: Several senior executives of BitConnect were indicted and the case is still ongoing.

BlockFi：

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

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

Kraken：

Case Summary: The SEC alleged that Kraken’s staking program constituted an unregistered security.

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

FTX 和 SBF（Sam Bankman-Fried）：

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

Result: SBF faces multiple legal actions and the cases are still ongoing.

Binance 和 CZ（Changpeng Zhao）：

Case Summary: The SEC launched an investigation into Binance and its founder CZ, accusing them of defrauding investors and failing to register their exchange business.

Outcome: Binance agreed to forfeit $2.5 billion and pay a $1.8 billion criminal fine, 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 cryptocurrency lending platform Genesis and crypto exchange Gemini, alleging that they violated securities laws by attracting investors through unregistered crypto lending products.

Outcome: Case is ongoing.

Terraform Labs 和 Do Kwon：

Case Summary: The SEC filed a lawsuit against Terraform Labs and its founder Do Kwon, alleging that they defrauded investors and misled the public in connection with the offering and sale of unregistered securities.

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

Judging from the above-mentioned 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 issuance:

· Investors invest money or other fungible assets;

· The investor’s investment is in a common enterprise;

· The investor expects to rely on the efforts of a third party (usually a company or other entity) for a return on their investment;

Investors’ returns depend primarily on the efforts of third parties.

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

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

The crypto industry's view of Gensler is mostly derogatory, and it is common to hear comments that he is gradually ruining the crypto industry. Basically, most articles also criticize Gensler and the SEC from this perspective.

Is this perspective really correct? In the author's opinion, this view is biased. Looking at the 15-year history of the crypto industry, the SEC has not promoted the crypto industry as much as Gensler's three years in office.

A breakdown of the major events that have positively impacted the crypto industry at Gensler from April 2021 to today.

In October 2021, the first Bitcoin futures ETF was launched.

In January 2024, the first Bitcoin spot ETF will be launched.

In May 2024, the 19 b-4 document for the approval of the Ethereum spot ETF was approved. (Several institutions stated that the Ethereum spot ETF product will be launched this month)

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

The author gave an example from his personal experience. When people around me asked me what industry I was in, and mentioned words such as encryption, virtual currency, and Bitcoin, they would warn me that "there is something wrong with this industry, find a decent 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 I mentioned such questions, people around me could think of the launch of the Bitcoin spot ETF in the United States and Hong Kong's positive attitude towards Web3. They asked the author about the relevant dynamics of the industry and did not need to be shy when talking about related projects.

Judging from the above experience, the SEC's approval of cryptocurrency ETFs is an endorsement that officially brings the crypto industry into the mainstream world, allowing the crypto industry to appear globally in an official capacity. Based on this alone, Gensler is enough to occupy a place in the history of the crypto industry.

Some people may think that even if someone else were to serve as the chairman of the SEC, the cryptocurrency ETF would still be approved under the current trend. But isn’t this kind of view “hindsight”? It is impossible to measure how the current trend is formed and whether the role of the SEC in approving cryptocurrency ETFs is underestimated. But the mainstream world’s funds can enter the crypto industry, and security is also the premise. Compared with 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 issues of securities token determination. From a side reflection, 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 fluctuation in the market trend. However, the cryptocurrency ETFs approved by the SEC in recent years have left a glorious mark in the long river of history.

In general, Gensler may have factions, selfish motives, 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.