Update (1215ET): Gensler is speaking live, readers can watch below.
The headlines culled from his prepared remarks are already rolling in...
- U.S SEC CHAIR GENSLER SAYS CRYPTO TRADING, LENDING AND DECENTRALIZED FINANCE PLATFORMS SHOULD BE TOP PRIORITIES FOR OVERSIGHT
- STOCK TOKENS, STABLE VALUE TOKENS BACKED BY SECURITIES AND ALL VIRTUAL PRODUCTS PROVIDING EXPOSURE TO UNDERLYING SECURITIES FALL UNDER SEC OVERSIGHT
- GENSLER HINTS AT OPENNESS FOR ETF WITH FULL MUTUAL FUND RULES
- GENSLER: IF CRYPTO TO BE WIDELY ADOPTED, IT NEEDS SOME RULES
- GENSLER: ASKED SEC STAFF TO UNCOVER ANY WRONGDOING IN CRYPTO
- GENSLER: MANY TOKENS MAY BE SECURITIES UNDER OUR LAWS
- GENSLER: THE SEC SHOULD BE TECHNOLOGY NEUTRAL
CNBC shared some quotes from Gensler's opening remarks: "Certain rules related to crypto assets are well-settled. The test to determine whether a crypto asset is a security is clear,” he said. “There are some gaps in this space, though: We need additional Congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks. We also need more resources to protect investors in this growing and volatile sector."
- “FSOC must act quickly to use its statutory authority to address cryptocurrencies’ risks and regulate the market to ensure the safety and stability of consumers and our financial system,” the Massachusetts Democrat wrote in a letter to Yellen. “As the demand for cryptocurrencies continues to grow and these assets become more embedded in our financial system, consumers, the environment, and our financial system are under growing threats,” she added.
- “The American public is buying, selling, and lending crypto on these trading, lending, and DeFi platforms, and there are significant gaps in investor protection,” Gensler said. “Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they meet an exemption. Make no mistake: If a lending platform is offering securities, it also falls into SEC jurisdiction.”
- The big takeaway so far is that while Gensler said he remains open to an ETF with mutual fund rules, he didn't offer any comment on the timing of a potential decision to approving one of the many pending crypto ETFs (Cathie Wood's Ark recently filed to create one).
He will be interviewed on panel led by WSJ's Paul Vigna shortly.
* * *
Tuesday could be a critically important day for cryptocurrency regulation in the US. President Biden's SEC chief, Gary Gensler, promised to rid cryptocurrency markets of "fraud" and "manipulation" even before being confirmed. And since taking office, he has promised to reform the patchwork of regulations currently governing the space.
While his intentions remain vague to the thousands of investors trying to parse his intentions - as Bloomberg pointed out, a team of analysts at Goldman dug through 29 hours of Gensler's lectures at MIT (any interested parties can find the first in the series of Gensler's lectures here) - Gensler offered a glimpse during an interview with Bloomberg that was published early Tuesday morning, hours before Gensler was expected to share his plans for the first time, and possibly approve the first US bitcoin ETF.
In what Bloomberg billed as Gensler's "first extensive interview about the digital money craze", the SEC chief said his interest in the subject of cryptocurrencies doesn't mean he's satisfied with the status quo. Gensler is apparently planning a "robust" regulatory framework designed to protect Americans who have caught the crypto bug.
Gensler is contemplating a robust oversight regime, centered on establishing safeguards for the millions of investors who’ve been stocking their portfolios with tokens. “While I’m neutral on the technology, even intrigued—I spent three years teaching it, leaning into it—I’m not neutral about investor protection,” says Gensler, who on Tuesday will give a speech about crypto at the Aspen Security Forum. “If somebody wants to speculate, that’s their choice, but we have a role as a nation to protect those investors against fraud.”
Part of Gensler's plan involves lobbying Congress to expand the SEC's powers over the industry.
Gensler has asked Congress to pass a law that could give the agency the legal authority to monitor crypto exchanges, but he says the SEC’s powers are already broad. There’s been much discussion over the years about which kinds of digital assets fall under the SEC’s purview. Some such as Bitcoin that act like currencies are considered commodities, not securities. But there are thousands of other coins, and Gensler believes most are unregistered securities that must comply with SEC rules.
At one point, Gensler offered an analogy to the automobile industry, arguing that increased regulation helped cars become more mainstream. Whether or not Gensler is hinting here about a potential bitcoin ETF is anybody's guess.
Broadly he noted that technology has sparked economic progress throughout human history, and he sees a similar boost from digital assets. That may only come, however, with strong and thoughtful regulation. As an analogy, he says the automobile industry didn’t fully take off until governments laid out driving rules. Speed limits and traffic lights provided public safety but also helped cars become mainstream. “It’s only with bringing things inside—and sort of clearly within our public policy goals—that a technology has a chance of broader adoption,” he says.
While Gensler's exact intentions remain vague, many in the crypto space remain hopeful that the SEC chief - who, as we noted above, has taught classes about crypto and blockchain - is "an ally" of the industry, and wants to see it change for the better. In one of the more helpful details, BBG said that Gensler has pushed the agency's staff members to take a look at an array of potential policy changes. He says there are at least seven SEC initiatives looking at different crypto issues, including initial coin offerings, trading venues, lending platforms, decentralized finance, stable value coins, custody, and ETFs and other coin funds.
“I’ve asked the staff to use all of our authorities anywhere we can,” he says. Gensler says he thinks regulating crypto exchanges is perhaps the easiest way for the government to get a quick handle on digital token trading.
Gensler has also expressed concerns about DeFi and its most popular feature, peer-to-peer lending. If firms are advertising a specific interest-rate return on a crypto asset, Gensler says, that could bring the loans under SEC oversight. Any company that pols digital assets for any reason could be seen as akin to mutual funds, potentially allowing the SEC to regulate them, he said.
“While I’m neutral on the technology, even intrigued — I spent three years teaching it, leaning into it — I’m not neutral about investor protection,” said Gensler.
Bloomberg's piece on the interview also included a bit of history of Gensler's path to the SEC. Gensler was the financial chief of Hillary Clinton's losing 2016 presidential campaign and afterward "he had the lonely job of closing up shop." For Gensler, teaching about bitcoin was a way to pick up the pieces after the campaign's historic failure.
The 63-year-old former Goldman Sachs partner traveled an unlikely path to becoming one of the government’s foremost cryptocurrency experts. It started in 2017, when as chief financial officer of Hillary Clinton’s failed presidential campaign he had the lonely job of closing up shop, paying off the final bills, and deciding what to do with the abandoned computers and office supplies. Like many of his shell-shocked former colleagues, Gensler was looking for something to do—and somewhere to sit out Donald Trump’s presidency.
The answer came from economist Simon Johnson, an MIT professor who encouraged Gensler to come to Cambridge, Mass., and teach. Looking to nurture a long-held interest in the intersection of technology and finance, Gensler jumped at the opportunity. Although he didn’t know much about digital tokens, he connected with people who were part of the university’s burgeoning Digital Currency Initiative and even audited a course in crypto programming. When he suggested MIT teach more about finance and digital money, he was given the job. Little did he know that in a few years he’d have a chance to put his academic studies to real-world use. “Life sometimes is a bit of serendipity,’’ he says.
During the interview with BBG, Gensler didn't offer a timeline for implementing his new framework. It's not really clear whether he will even outline his plans on Tuesday, or save that for a later date. After all, the SEC has 49 'non bitcoin' policy priorities, including requiring corporations to disclose carbon emissions, something Gensler marked as a top priority last week.
On Tuesday, Gensler is set to speak at the Aspen Security Forum during a talk being moderated by WSJ reporter Paul Vigna, a reporter who has written books on the subject of cryptocurrencies. The talk begins at 1215ET.
Thanks for front-running my big day, @BW. :)— Paul Vigna (@paulvigna) August 3, 2021
Want more on this? Chair Gensler and I will be talking about it at 12:15 ET today:https://t.co/FMcSxR8Rw7@AspenSecurity @GaryGensler https://t.co/Kf1aFqnu7p
To be sure, many in the crypto industry see Gensler as somebody with a higher level of understanding compared with most political appointees (or politicians). The hope is that increased regulation will lead to more adoption - and we imagine the entire community would embrace anything that makes the price go up.
But this all could backfire - even if the SEC does approve a bitcoin ETF. While there's no indication that the US regulation will be anywhere near as strict as Beijing's crackdown, with the Fed developing its own crypto, the government has every incentive to try and undermine bitcoin. Let's hope the community isn't being blinded by Gensler's slick talk about "increased adoption."