Gary Gensler’s Messy Crypto Legacy — And What Happens Next

Gary Gensler’s time as chair of the Securities and Exchange Commission is coming to a messy and premature end.

He had no shortage of enemies in the crypto industry — leading a regulator that pursued countless dozens of lawsuits and enforcement actions against U.S. firms.

A one-time lecturer about digital assets and blockchain at MIT, Gensler tarred most of this sector with the same brush — branding it a “Wild West” that was rife with fraud.

The Biden administration appointee was regularly accused of overreach, with the courts striking down several controversial SEC rules.

Gensler dragged his heels when it came to approving exchange-traded funds based on Bitcoin’s spot price — repeatedly delaying decisions on applications from the likes of BlackRock.

But the commission suffered an almighty setback when an appeals court concluded it had failed to give clear reasons for rejecting an ETF proposal put forward by Grayscale.

A common criticism of the SEC under Gary Gensler’s tenure centered on how it was pursuing “regulation by enforcement” — an approach that exasperated crypto exchanges.

Coinbase was furious when it was slapped with a Wells notice back in April 2023, and vowed to come out fighting after being accused of listing securities on its trading platform.

The CEX had been given the green light to list on the stock market, which followed an intensive six-month review process, back in 2021.

But executives claimed the Wells notice was focused on “the very aspects of our business” that were the subject of “detailed discussions” during the IPO process.

And while Coinbase had offered two separate proposals on ways it could register with the SEC, the company said it received no feedback — and angrily said at the time:

“Regulatory uncertainty in the crypto industry is getting worse. Instead of developing a regulatory framework for crypto, the SEC is continuing to regulate by enforcement only.”

Paralysis, indecision and uncertainty during the Gensler era had real-world consequences — driving a number of American digital asset firms offshore in search of friendlier climes.

And that led to the likes of FTX flourishing in The Bahamas — operating outside of the SEC’s reach — with the fraudulent exchange stealing billions of dollars from its customers.

Gensler faced a slew of uncomfortable questions after Sam Bankman-Fried’s empire collapsed, and had met privately with the young entrepreneur before FTX’s bankruptcy.

Politicians accused Gensler of failing to be transparent regarding his dealings with FTX, with one claiming he was “singularly responsible for the regulatory failures” surrounding its demise.

If that wasn’t awkward enough, a revolving door meant some of FTX’s most senior employees had previously worked closely with Gensler earlier in his career.

Listening back to Gensler’s interviews with financial media — whether with Bloomberg or CNBC — you can see this was a chairman who was rightly focused on protecting consumers.

Heck, you could argue that some of his enforcement actions were good for the crypto sector, especially when the SEC threw the book against A-listers who shilled questionable altcoins.

The likes of Kim Kardashian endorsing shady cryptocurrencies without disclosing six-figure payouts is clearly not OK, putting millions of followers at risk of substantial financial harm.

But it was how he interacted with crypto companies in the space that rubbed them up the wrong way — and led to allegations he was stifling innovation.

Most if not all American exchanges were keen to cooperate with the SEC and welcomed the prospect of regulation, as it would give them clear rules of the road for innovation and growth.

Yet crypto entrepreneurs felt they were the target of a disproportionate assault with Gensler at the helm — despite the relatively small size of the industry.

Some industry heavyweights did little to hide their visceral hatred for Gensler when it was announced he would be stepping down.

Kraken chairman and co-founder Jesse Powell described him as “a clown and a treasonous terrorist,” and there were a fair share of middle finger emojis doing the rounds on X.

It’s difficult to predict where America’s crypto industry would be now if the SEC hadn’t acted as such an almighty roadblock — but in a weird way, Gensler might have contributed to the market’s resurgence.

Frustrated crypto executives ended up using their vast personal wealth, and their company’s resources, to enact the political change they felt was desperately needed.

There’s little doubt their extravagant donations to Donald Trump’s campaign helped change his view on Bitcoin — and without their financial support, it’s highly unlikely he would have rolled out a slate of pro-crypto policies that included firing Gensler on his first day in office.

Close attention will now be paid on who might be selected as the next SEC chair, amid hopes that some of the guardrails holding crypto back will be torn down in the coming four years.

There has already been insatiable demand for Bitcoin and Ether ETFs — and new leadership could open the door to funds tracking the prices of smaller cryptocurrencies as well.

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And to understand the SEC’s true impact on the altcoins it was pursuing, consider this: XRP has rallied by a jaw-dropping 183% over the past month.

The big question now is whether the next White House’s embrace of crypto — complete with a dedicated czar, an advisory council and a friendly SEC — will be accompanied with protections that will allow everyday consumers to invest in the space safely.

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