Gensler's successor could provide clarity on cryptocurrency, but first, they must be appointed.
Written by: Jack Inabinet, Bankless
Compiled by: Deng Tong, Golden Finance
President-elect Donald Trump promised to end the Biden administration's anti-crypto campaign, vowing on day one to "fire" SEC Chairman Gary Gensler, thus winning the hearts of the crypto industry.
Despite Trump not yet proposing a replacement for Gensler and the legality of his ability to dismiss current SEC commissioners being somewhat questionable, cryptocurrency participants are still overjoyed at the prospect that a new SEC chair will soon alleviate one of the industry’s biggest regulatory pain points.
Commissioners Hester Peirce and Mark Uyeda may have withdrawn from the race for the chairmanship, but they have always been outspoken advocates for the freedom of digital assets and regulatory limitations during their time at the SEC.
Today, we explore the official statements of Peirce and Uyeda in hopes of understanding what a pro-cryptocurrency SEC under the Trump administration might look like.
Proposed Token Safe Harbor
The day before Gary Gensler was confirmed as SEC chairman in April 2021, Commissioner Peirce began considering digital assets.
Recognizing that the new SEC chairman will propose a new enforcement priorities agenda, Peirce attempted to steer the conversation towards how to craft securities regulations to accommodate blockchain-based tokens by releasing an updated token safe harbor proposal on GitHub.
Peirce's updated proposal aims to provide a three-year federal securities registration exemption or safe harbor for developers of decentralized applications. It incorporates significant revisions based on feedback from the crypto community, securities lawyers, and the public on her previous draft from February.
Under the Trump administration, the pro-cryptocurrency SEC is expected to prioritize providing clarity on cryptocurrency while actively soliciting industry feedback to draft regulations that balance the needs of emerging decentralized applications with the agency's urgent need to protect the investing public.
Irreplaceable Foolishness
"Stoner Cats" is a collection of 10,320 NFTs that were minted for $8.2 million in ETH in July 2021; the proceeds from this sale will fund the production of an animated series also called "Stoner Cats," featuring Hollywood stars such as Mila Kunis, Ashton Kutcher, and Chris Rock. In exchange for their purchase, holders of Stoner Cats NFTs will gain exclusive access to the series, unspecified future entertainment content, and an online community.
Although the SEC ultimately reached a settlement with the entity behind Stoner Cats over unregistered securities issuance, Republican Commissioner Mark Uyeda was the only dissenting voice among SEC commissioners against this enforcement action.
Commissioners Peirce and Uyeda acknowledge that NFT creators should not receive a free pass from securities regulation, but they believe the application of securities regulation by the SEC in this case would only lead to legal ambiguity.
Under the Trump administration, the pro-cryptocurrency SEC is expected to establish comprehensive guidelines on how to apply securities regulations to NFTs; to replace the uncertainty surrounding the legal status of hypothetical tokenized Pokémon cards, it should clarify when digital assets can be exempt from securities regulation.
Token Tensions
In March of this year, the SEC took what appeared to be controversial enforcement action against a cryptocurrency company, resolving allegations against cryptocurrency exchange ShapeShift for acting as an unregistered securities dealer in its online crypto asset trading platform.
Although ShapeShift became a peer-to-peer decentralized exchange in 2021, it has acted as a brokerage intermediary for over six years, fulfilling inventory orders and acting as a counterparty for all cryptocurrency transactions occurring on its platform.
Although Commissioners Peirce and Uyeda did not challenge claims that ShapeShift operated as an unregistered securities dealer prior to 2021, they expressed concern in another joint dissent about the ambiguity caused by the SEC's enforcement actions.
To qualify as an unregistered securities dealer, ShapeShift must facilitate the sale of securities. The SEC has been unwilling (or unable) to identify the relevant securities or how the sale of these securities creates investment contracts, thereby creating an untenable environment for secondary trading of crypto assets.
Under the Trump administration, the pro-cryptocurrency SEC is expected to clarify which tokens qualify as securities, eliminating the threat of ambiguous misconduct faced by cryptocurrency-native exchanges like Coinbase while approving registered securities dealers to list such assets alongside existing products.
Imminent Issues
Decades of precedent suggest that Chairman Gensler will resign and hand over control of the SEC to a Trump appointee, but his term does not expire until 2026, and it remains completely unclear whether President Trump could forcibly remove Chairman Gensler before then without enduring protracted litigation.
However, it is worth noting that many within the crypto industry interpreted Gensler's recent remarks on November 14 as an informal resignation notice, as the chairman stated it was "a great honor to serve."
As an independent regulatory agency, the SEC enjoys considerable autonomy from the executive branch, and although Trump boasted on day one about firing Chairman Gensler, ambiguous case law may support the view that SEC commissioners can only be removed "for cause" and not simply "at will."
Although the SEC chairman has discretion over the agency's budget and supervises its staff, they need to obtain a majority approval from the commission to appoint executive department heads, and each commissioner has an equal voice in agency procedural votes that guide the SEC in how to interpret and enforce securities legislation.
Commissioners are appointed by the President of the United States for five-year terms but must be confirmed by a majority in the Senate. The terms are staggered to ensure that one member can be removed on June 5 each year, although commissioners can serve an additional 18 months after their terms expire to prevent vacancies, no more than three of the five commissioners can belong to the same political party at any time.
Although Commissioner Crenshaw's term expired on June 5 of this year, she remains at the SEC and has been re-nominated by President Biden to fill the resulting vacancy.
If this vacancy persists until before President Trump's inauguration, he could easily fill the Republican Senate seat with his chosen candidate, consolidating what appears to be a pro-cryptocurrency majority within the SEC. Unfortunately, the currently Democrat-controlled Senate still has plenty of time to confirm Crenshaw's additional five-year term, and the Biden administration could always take stealth recess appointments after the Senate breaks on December 20.
Even if Gensler does not resign and assuming Crenshaw's reappointment is confirmed, President Trump could still exert his influence on the SEC by appointing unwilling Peirce and Uyeda.
While no clarification rulemaking activity would occur in this case, the acting chair would gain control over SEC staff, granting them the power to rescind controversial SEC Staff Accounting Bulletin 121, process requests for no-action letters, suspend or terminate ongoing enforcement investigations and litigation, and solicit public feedback as the first step in future cryptocurrency rulemaking processes.
