Gary Gensler — What Else Can the Man Bring to the Table
In any cryptocurrency-related community nowadays, when discussing the current SEC (U.S. Securities and Exchange Commission) Chairman, Gary Gensler, the predominant response is likely to be filled with fear, disapproval, and a plethora of memes joking about him "seeing everything as a security".
Lawsuits against Binance, lawsuits against Coinbase, proclamations that "cryptocurrency needs to be uniformly regulated like securities", and increasingly frequent and harsh regulatory actions have seemingly painted Gensler as something of a villain.
However, just three or four years ago, he was a loyal supporter of cryptocurrency for all to see. He publicly stated that "over 70% of the crypto market are not securities", and even served as a professor at a university, actively advocating for blockchain technology and cryptocurrency.
What is behind this seeming contradiction in attitude? Is Gary Gensler a turncoat, betraying the crypto market, or is he just "in a sophisticated love" with it?
Youngest Partner of Goldman Sachs
In October 1957, Gary Gensler was born into a working-class Jewish family in Baltimore, a port city on the east coast of the United States. Gensler's father made a living supplying cigarettes and pinball machines to local bars. As a young boy, Gensler got his first exposure to the real side of "finance" by helping count coins in machines for pocket money.
From a young age, Gensler excelled academically. In 1975, he graduated from high school and was later awarded the "Distinguished Alumnus award." Then, after three years at the prestigious Wharton School of the University of Pennsylvania, Gensler earned a summa cum laude in economics and an MBA the following year.
In 1979, fresh out of college, Gensler joined Goldman Sachs, where he worked for a continuous 18 years. During this time, he held positions in mergers and acquisitions, provided consulting services to media companies, and served as the head of fixed-income and foreign exchange trading. Due to his wide range of capabilities, Gensler was referred to as a "top intellectual powerhouse in the financial field."
At the age of 30, Gary Gensler became one of Goldman Sachs' youngest partners at the time.
Notably, according to the New York Times, in 1990 Gensler, as the team leader, provided consulting services to the National Football League (NFL), helping them strike a deal with five television platforms for the broadcasting rights of football games in 1994. The total value of the deal was a staggering $3.6 billion, making it the most profitable deal in television history at the time.
Gensler's tenure at Goldman Sachs not only made his name well-known on Wall Street but also paved the way for his future political career.
In 1993, Goldman Sachs CEO Robert Rubin joined the Clinton administration and became the U.S. Treasury Secretary two years later. In 1997, Gensler, who had just entered his forties, followed his former boss to the Treasury Department, serving as an assistant secretary and officially embarking on his political career.
Early Career in Politics
In 2001, Gensler became a senior adviser to Paul Sarbanes, chairman of the U.S. Senate Banking Committee, and helped draft the Sarbanes-Oxley Act, which tightened accounting standards in the wake of Enron and WorldCom's bankruptcy scandals.
The Enron bankruptcy was a landmark event in financial history. At the end of 2001, Enron, once one of the world's largest energy trading companies, was exposed for fraudulent accounting practices, concealing massive debts, and manipulating the market. Not only did Enron go bankrupt, but the scandal also led to the dissolution of the Arthur Andersen accounting firm, reducing the "Big Five" accounting firms to the "Big Four." The Enron debacle was both the largest bankruptcy case and the biggest audit disaster in U.S. history.
In 2008, after Barack Obama was elected President of the United States, Gensler served as Chairman of the U.S. Commodity Futures Trading Commission (CFTC) from 2009 to 2014. Facing the mess left by the 2008 subprime mortgage crisis, Gensler's appointment carried an air of being chosen at a critical moment. During his tenure at the CFTC, through close cooperation with the Obama administration, Congress, and other regulatory bodies, he successfully implemented new regulations for U.S. derivatives, making an outstanding contribution to the financial regulatory system.
Gensler also served as the Chief Financial Officer for Hillary Clinton's 2016 presidential campaign. After the Democrats were defeated and Republican Donald Trump was elected President, Gensler fell out of favor and entered a brief period of "hibernation" — which also marked his "honeymoon" with the crypto market.
Honeymoon with the Crypto Market
Although most crypto market users were not familiar with Gensler until 2021, when he became the Chairman of the SEC and started to regulate the crypto market, the fact is that Gensler's involvement with the crypto market predates his appointment to the SEC. In fact, Gensler's relationship with the crypto market predates his appointment to the SEC, and even before he became the "enemy of the market" that he is now, he had a honeymoon period with the crypto market.
Preaching at MIT
2017 was a year of explosive growth for the crypto market. An influx of ICOs appeared, and countless "100x coins" emerged. The price of Bitcoin soared from a few hundred dollars at the beginning of the year, peaking at around $19,000. The thriving market atmosphere, coupled with the continually proven utility of emerging fintech, led many scholars and financial professionals to turn their attention to the blockchain field — Gensler was no exception.
In early 2018, Gensler officially joined the Massachusetts Institute of Technology, serving as a professor at the MIT Sloan School of Management and a senior advisor to the Digital Currency Initiative at the MIT Media Lab. During his tenure, he conducted research and teaching on topics such as blockchain technology, digital currencies, fintech, and public policy.
In the "Blockchain and Money" course recorded by MIT in the fall of 2018, Gensler, as the lecturer, systematically interpreted the blockchain ecosystem. Thanks to Gensler's thorough understanding of blockchain technology and his accessible teaching style, the course was well-received by students. Besides the official MIT OpenCourseWare website, the course was also uploaded to YouTube, where the first lecture has nearly 7 million views now, with numerous comments praising both the course itself and Gensler.
He won the MIT Sloan Outstanding Teacher Award for the 2018-19 academic year based on student nominations.
High Approval and Active Participation
During his honeymoon phase with the crypto market, Gensler wasn't just preaching about blockchain technology in the classroom, but he was also expressing his confidence in the crypto economy and his encouragement for certain projects in other settings.
At the New York Fintech conference in April 2019, Gensler praised the Algorand project and its lead developer, Silvio Micali. He highly rated Algorand, calling it "a great technology," and thought blockchain was very efficient. Notably, Algorand didn't officially launch until late June 2019 — two months after Gensler's speech — implying that Gensler had a rather deep "private relationship" with the crypto market at that time.
Gensler also maintained close relationships with several top players in the crypto market. For example, according to a lawyer from Binance, Gensler had dinner with CZ in Japan in 2019 and offered to become an advisor to Binance — a claim that Gensler himself has yet to refute.
His deepest relationship (and one that is now considered a stain on Gensler) is with Sam Bankman-Fried, the founder of FTX. The ties between Gensler and FTX, or SBF, are rather convoluted: SBF's ex-girlfriend and partner's father was Gensler's boss during his tenure at MIT. Furthermore, according to public information from the U.S. Congress members, many members of Gensler's former staff joined the FTX team, after Gensler temporarily stepped back from the political stage.
There have also been accusations aimed at Sam Bankman-Fried (SBF), the founder of FTX, for being overly involved in politics. There are even rumors that he's "laundering money for the Democratic Party." For further information, please refer to the content: Who is SBF - from mansions and yachts to silver bracelets and iron bars in five years
In 2020, Gensler delivered his final lecture at MIT on blockchain.
During his three years immersed in academia, Gensler's active participation and thorough understanding earned him a good reputation within the crypto community. Many participants in the crypto market saw him as a forward-thinking order maintainer, even considering him a close friend of the crypto market, looking forward to his introduction of new and effective regulatory standards. As such, many people, including those in Congress, believed that if Gensler could return to the political stage, it would be a major boost for the regulation of the crypto market.
The Betrayal of the SEC Chairman
With the inauguration of Biden, Gensler's political career had a second bloom. In April 2021, he was appointed as the chairman of the SEC for a term of five years, until 2026. The crypto community cheered facing a regulator with a comprehensive understanding of the financial market, the crypto market, and digital technology. At the same time, Congress and regulatory bodies also displayed a very positive and optimistic attitude, as they all believed that Gensler would bring clearer and more precise rules of operation to the market. Jeff Bandman, a former senior official at the CFTC, publicly expressed his support and anticipation for Gensler. He believed that Gensler would vigorously promote the regulation and innovation of the crypto industry, and stated, "I would be shocked if there are not things that make the industry howl."
At the start of his tenure, Gensler publicly stated that as the highest regulatory body for Wall Street, the SEC would quickly formulate a set of rules to supervise the cryptocurrency market, which lacks good regulatory guidance, while balancing the interests of American innovators.
However, gradually, these innovators began to notice that the actions of the SEC Chairman seemed to deviate from previous expectations, and even launched a series of attacks on the crypto market, which drew a chorus of boos. So, what exactly has Gary Gensler done?
Vague Definition of Securities
To delve into this "vagueness," we need to go back a bit further in the timeline.
In April 2018, Gensler, who was about to join MIT, answered a question at a blockchain-themed forum: Are cryptocurrencies securities or commodities? His response was — "It’s both. I know that’s not an answer that a lot of people like, but that’s kind of where we are right now." Also at this forum, Gensler stated that Bitcoin is not a security, but Ethereum and Ripple likely are securities.
In a recently released video clip, Gensler, at the Institutional Crypto Conference at Bloomberg HQ in October 2018, gave a talk on topics such as policy regarding the crypto market. This time, he explicitly stated in his speech that "more than 70% of cryptocurrencies on the market, including Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH), are not securities."
After taking office as the SEC Chairman, Gensler's stance on whether cryptocurrencies are securities began to harden. He repeatedly publicly stated that the crypto market needs to strengthen regulation, as it's a "Wild West riddled with fraud." In September 2022, he came to a fresh conclusion, "The vast majority of cryptocurrencies on the market are securities."
Interestingly, the blockchain evangelist Gensler of yesteryear and today's SEC Chairman have made different conclusions but are based on the same standard — the Howey Test.
In a nutshell, the Howey Test is designed to determine if a transaction constitutes an investment contract, and therefore, if the underlying assets of the transaction qualify as securities. There are four prerequisites for a transaction to be recognized as a securities transaction:
- An Investment of Funds: Participants invest money, property, or other items of value into a business or entity.
- A Common Entity: The investor places money into a business or entity, shares a common interest, and relies on the management, efforts, or capabilities of others for returns.
- Anticipation of Profits: The investor expects to reap profits from the actions of that business or entity.
- Relying on the Efforts of Others: The anticipated profits hinge on the efforts, experience, and skills of others (usually the business or entity's management), rather than the investor's own exertions.
Gensler believes that, just as securities circulating in the U.S. markets, cryptocurrencies "with the nature of securities" should also be regulated by the SEC. As for the judgment criteria, the Howey Test is a clear and accurate method that can determine whether a certain cryptocurrency asset is a security.
Therefore, Gary Gensler's latest answer to the same question is: in the existing crypto market, apart from Bitcoin, all others are unregistered securities. They have not made necessary disclosures or market supervision, and investors buy tokens for expected profits. As for Ethereum, Gensler currently refuses to give a clear response.
Not to mention whether the Howey Test, born in 1946 with the possibility of broad interpretation, can still apply to the emerging crypto market, Gensler's ever-changing and contradictory attitude makes it hard for market users not to feel confused and disappointed.
Blaming Everything on the Crypto Market
In March 2023, multiple banks, including Silvergate and Signature, went bankrupt one after another. In a hearing about the reasons behind this crisis, Gensler insinuated that those collapsed banks have connections with the crypto market and are so-called crypto-friendly banks, which is "quite interesting." The implication was that the crypto market was the culprit behind everything.
However, at the same hearing, some lawmakers questioned Gensler's attribution theory as erroneous. At least for Signature, the bank run pressure it faced at the time mainly came from a wide range of depositors, including large food suppliers, trust funds, law firms, etc., and the outflow of cryptocurrency deposits was only a part of it. In terms of volume, it was far from being the scapegoat for the entire incident.
Suing Leading Cryptocurrency Exchanges
In June 2023, the SEC successively sued two centralized exchanges, Binance and Coinbase.
On June 5th, in a 136-page complaint against Binance, its founder CZ, and two Binance entities in the U.S., the SEC accused the defendants of "violating federal securities trading rules," including but not limited to ignoring federal securities laws and reaping billions of dollars; the U.S. entities were under the actual control of CZ, and CZ himself gained enormous benefits from it; Binance illegally provided securities market functions including exchange, broker-dealer, and clearing agency without registering with the SEC; illegally engaged in the issuance and sale of unregistered crypto asset securities.
On June 6th, the day after filing a lawsuit against Binance, the SEC once again sued the largest cryptocurrency exchange in the U.S., Coinbase, with the accusation of "violating federal securities laws." Except for the founder's part, the accusations against Coinbase were very similar to those against Binance.
Within two short days, the SEC successively launched attacks against two top cryptocurrency exchanges. The crypto market was suddenly under enormous pressure, and the call to protest against the SEC grew louder.
Gary Gensler himself later accepted a TV interview with Bloomberg. He stated that these cryptocurrency exchanges are casino operators dealing against users, and the SEC does not believe they can protect the interests of investors, hence the enforcement action.
Remember, as mentioned earlier, Gensler has had some interaction with CZ and held friendly discussions on blockchain technology. The current situation is not only causing the crypto market to cool down, but it's also leaving many market participants feeling disillusioned. For example, Kenny, the co-founder of Manta Network, expressed on his Twitter after the SEC sued Binance, that seeing Gary Gensler and CZ, who once guided him on the path of cryptocurrency, now become enemies, is "like watching your parents fight." (Well, some in the comments suggested that "brothers at odds" might be a more appropriate expression.)
Gary Gensler the Man
People are multi-dimensional and complex. Apart from the documented life story narrated earlier, Gary Gensler has many anecdotes worth sharing. These can allow us to "get to know a person" from that perspective, put aside his identity as SEC Chairman, and further understand what kind of person he is and what kind of logic he follows in his actions. We might as well glimpse through the following few aspects.
A Bitcoin Maximalist
During his time teaching at MIT, Gensler often declared himself a "Bitcoin fundamentalist." Objectively speaking, this self-designation is relatively accurate. Because strictly regarding Bitcoin, Gary Gensler's attitude has indeed never changed, even now he has not categorized it as securities.
In the crypto market, there exists a group of "BTC maximalists" who believe in Bitcoin just like some people in traditional markets believe in gold. For these investors, Bitcoin is the "only valuable cryptocurrency". Therefore, they not only use Bitcoin as a means of payment but also consider it a means of storing wealth, i.e., the accumulation of value.
Gensler is also not stingy at demonstrating his affirmation of Bitcoin and blockchain technology. He believes that the blockchain revolution initiated by Satoshi Nakamoto in 2008 is not just a trend, but a real value proposition for the future of the Internet.
Good at Crafting a Persona
Gensler has always been adept at shaping his own image. After taking office as the Chairman of the SEC, he launched a series of videos on YouTube titled "Office Hours with Gary Gensler", committed to building a personal brand by sharing financial tidbits and office routines.
And his efforts in personal image construction have a long history.
In 2012, when Gensler was serving as the chairman of the CFTC, he was undoubtedly successful. The implementation of new regulations and market rectification, not only added a significant accomplishment to his resume but also firmly established his image as a tough regulator.
Meanwhile, in a profile column titled "Gary Gensler: The Money Cop" published by Time magazine that year, Gensler presented an affable and friendly image, stripped of his political persona. The article mentioned that after his wife of twenty years fell ill and passed away, Gensler raised his three daughters alone — who could imagine that the fearsome chairman of the CFTC in the financial market, once returning home, is a joke-loving, gentle father, who often has to wash dirty clothes for his children after coming home.
The article also mentioned that his tough stance on the financial market made him "more enemies than friends," and some professionals (well the article didn't specify who) believed that with Gensler's capabilities, he should hold a higher position (such as Chairman of the SEC, for instance🤭). In response to such comments, Gensler modestly said: he's honored to be doing his current job.
The capital market may dislike a strong-handed regulator, but people's hearts may unconsciously lean towards a middle-aged single father who has to "offend" Wall Street bigwigs due to his duty, and yet cherishes family life immensely, right?
A Utilitarian Master of Attention Control
In the business world, you speak in business terms; in politics, you talk politics.
Rather than adopting a gentle guide for the healthy development of the crypto market, what the SEC Chairman cares more about is whether the regulatory mechanism can genuinely impact the crypto market and achieve explicit results under his leadership (or during his term).
Objectively speaking, the crypto market, which is still in its developmental stage, cannot stir up any noticeable waves compared to the complexity and universality of traditional finance. So, how can more people pay attention to the SEC's determination to regulate the crypto market? Just as we might think off the bat, Gensler made the same choice: to leverage the celebrity effect.
In October 2022, the SEC accused Kim Kardashian of illegally promoting cryptocurrency on social media, alleging that she promoted and sold "cryptocurrency securities" provided and sold by Ethereum Max without disclosing that she was being paid. In the end, Kardashian agreed to settle, paying a fine of $1.26 million, and pledged to cooperate with the committee's investigation.
Regardless of the severity or scale of the amount involved, it doesn't seem like a big deal and seems unworthy of the SEC's elaborate efforts. However, with online traffic from North America's Top 1 celebrity, the SEC has successfully attracted the attention of the market and public opinion.
Moreover, the attention battle between Gensler and Congress is fiercely intense. When Congress hopes to focus on the legislative framework of the crypto market, Gensler seems to always try to shift the focus to himself and his agency. Last month, an article published on Fortune Crypto detailed how the SEC under Gary Gensler's leadership snatched the microphone from Congress at every precise moment - this happened at least six times in 2023 alone.
According to the article, the most obvious example is the SEC's lawsuit against Coinbase. In early June this year, the U.S. House of Representatives was preparing to hold a hearing to discuss current regulatory issues in the crypto market. However, on the morning of the hearing day, the SEC announced it was suing Coinbase. As we mentioned earlier, the consecutive lawsuits against Binance and Coinbase within two days brought the SEC to the forefront of public opinion, while nobody cared about the congressional hearing and the regulatory issues discussed at the hearing.
The continued delay of regulatory issues is not good for the crypto market, but it might not be for Gary Gensler himself. For example, two members of Congress recently stated that they believe the SEC under Gensler's leadership is currently more keen on enforcement than legislation, making its presence known everywhere. But no matter what the real motivation is, Gensler is indeed a master at controlling attention, always knowing how to keep the spotlight on himself.
A Cunning Tactician
Perhaps SEC's current approach of "everything looks like securities, everything needs regulation" is just an act?
There's a theory that's been proposed: It seems like Gary Gensler is employing something called the "anchoring effect" for his tactical maneuvering, aiming to achieve his ultimate goal. Anchoring Effect is a term in psychology, essentially intended to create cognitive bias. Simply put, it's about overcorrecting at the early stage to achieve a final balance, kind of like giving a carrot after a stick.
Think about how Gensler, once disillusioned in the political arena, managed to gain support through his immersion in academia. You can hardly say he doesn't understand this game.
From this perspective, Gensler's current actions might be easier to understand. As a seasoned political veteran, he surely knows better how to ultimately win the power struggle with Congress. So, this stance that's so tough it's somewhat outrageous might be about leaving more room for negotiation for the future regulatory framework. And maybe by then, the crypto market would be grateful for the "carrot" he's thrown their way.
What Can We Really Expect from Gary Gensler
Firstly, it's important to understand that the crypto market has grown tremendously and become more complex over the past few years in terms of market size and industry paradigms. Compared to the traditional financial markets where SEC excels, the crypto market has a shorter development cycle and is more difficult to understand in a short time frame — there is still debate over whether it's even SEC's turn to step in.
After Gensler took office as SEC chairman, several significant events indeed happened in the crypto market, such as the Luna and UST collapse in 2022, followed by the bankruptcy of FTX. Within a year, millions of investors were affected, and assets worth nearly a hundred billion dollars vanished instantly. Prior to this, US regulatory agencies tended to turn a blind eye to the crypto market, meaning there is no ready-made template for the SEC to follow in terms of regulatory thinking. His vacillation, in this case, is somewhat justified.
However, apart from the chaotic state of the market, the standoff between the SEC and the crypto market is largely due to differing interests. As the saying goes, "Where you stand depends on where you sit". Even if Gensler is currently employing tactical maneuvering, his ultimate goal is to maintain the hegemony of the US dollar. This makes sense because no one wants to see their rice bowl being smashed. Moreover, the SEC could just be a stepping stone for Gensler toward a higher position. Therefore, showing weakness now is obviously not in his personal interest.
Currently, Congress also has negative opinions about Gensler's unilateral measures. Last month, US Congressman Warren Davidson submitted the "SEC Stabilization Act", publicly criticizing and calling for the impeachment of Gary Gensler as the SEC Chairman.
So now, there might only be two outcomes we can expect from Gary Gensler: hand out the carrot after this stick ASAP, or step down sooner.
At the same time, we should also ask ourselves this question: even without Gary Gensler, the regulation of the crypto market is an inevitable trend. While we certainly look forward to a crypto market with clear rules of the game, we also resist heavy shackles akin to the traditional financial market. This definitely presents a complex issue for regulatory authorities — so, if someone else were to take on this task, could they really do better?
Policy and Regulation
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