Gary Gensler, MIT fintech professor, long time regulator and ex-banker, was appointed SEC chairman by the Senate. While he is a proponent of financial innovation, he will seek to re-shape regulation before letting the crypto horse run wild.
Key takeaways:
- Gary Gensler has a deep knowledge and expertise of financial innovation, both from a technical/technological and regulatory standpoint.
- The new chairman believes that projects like Diem, Facebook’s long forgotten crypto asset, could bring benefits to society but that regulation is not clear enough yet.
- Gensler is expected to focus on a variety of issues linked with the market, things like the GameStop phenomenon, the red-hot stock market and SPAC accounting regulation.
- Biden’s nomination of such a well-known fintech expert to the SEC chairman role suggests that he was brought on to shape up the next stage of crypto land and not just enforce stock market regulation.
- Gensler could be a ‘’one step back for two steps forward’’ figure in the crypto industry.
The new SEC chairman
Gary Gensler is not new to important government roles. Previously chairman of the U.S. Commodity Futures Trading Commission, Gensler led the Obama administration’s reform of the $400 trillion swaps market after the great financial crisis of 2008 with an iron fist. He was a senior adviser to the Sarbanes-Oxley act and was Under Secretary of the Treasury during the Clinton years.
Prior to public service, and between 1979-1997, Gensler made a career at Goldman Sachs eventually becoming Partner of the M&A department and then co-heading Finance, a responsibility that saw him run Goldman Sachs’ worldwide controller and treasury efforts. He received both his undergraduate and MBA degrees from Penn.
His involvement in the FinTech space is well known though, more recent in form. A member of the New York Fed Fintech Advisory Group, Gensler has taught courses at MIT on fintech, regulation and blockchain and co-directed MIT’s Fintech@CSAIL program, a sort of think-tank and research startup incubator initiative. He favors a broad view of the Fintech sector suggesting that financial innovation has always existed, but that today, it is a holistic set of technologies from big data to blockchain coming together.
Senators voted 53-45 in favor of the professor with progressives expecting Gensler to proactively clamp down on climate risk, a red-hot SPAC market, and activity related to GameStop shares. More importantly, what could his appointment mean for cryptotokens?
Views on Diem as bellwether for crypto policy
In his testimony before the House of Representatives in 2019, Gary Gensler suggested ways the government could regulate Facebook’s Libra (now called Diem) via large scale regulatory oversight. He argued that the Libra Reserve could see bank-like regulation applied to it and that he recommends a prohibition of fractional reserves of the crypto currency altogether. He said that Libra’s drawing rights and adoption in emerging nations could threaten the IMF’s role, implying that a ‘’Libralization’’ could henceforth also threaten the US Dollar’s strength abroad.
He recommends amending the law to clarify that an investment vehicle such as the Libra Reserve should be structured under laws and that the current patchwork of state money transmission laws is unsatisfactory in treating the nature of things like Libra.
In order to avoid what nearly caused a run-on money market funds in 2008, there should also be investment restrictions on how the underlying assets are managed through restrictions of federally mandated liquidity requirements, a ban on lending or fractional banking and clear operational guidelines.
You can find the paper here for more detail, but what we learn is that Gensler is ready to accept more crypto into the financial system but believes the current regulation is too loose and broadly defined. He never once positions himself personally against the evolution of our financial system, stating his belief that technological innovation should be embraced. However, he indicates that to protect consumers and mitigate illicit activity, it will be the SEC’s prerogative to define clear rules before implementing something like a digital US-dollar.
Our opinion about the chairman from his speech is therefore:
If Gary Gensler can successfully re-shape regulation around cryptocurrencies, in such a way that 1. consumers are protected from volatility and illiquidity issues, 2. illicit activity is crushed and 3. the US dollar gains from its digital form and not the inverse, then one could expect digital currencies to become a much bigger part of daily life going forward in the US and abroad.
XRP, Bitcoin ETF and Gensler’s view on cryptoassets
While the SEC does not classify Bitcoin or Ether as a security, thus subject to the SEC’s regulatory oversight, such is not the case for every altcoin. Ripple (XRP) for example, remains under scrutiny by the SEC for allegedly selling unlawful tokens worth North of $1.3 billion, a legal battle that saw the value of XRP crash. Ripple’s CTO says that the market considers XRP to be similar to BTC and ETH and that the SEC made a mistake—after some recent legal victories last week, XRP saw a 29% rise in price in what others believe could be related to Gary Gensler’s arrival. The crypto world considers Gensler to be well acquainted with the industry, and there has been more euphoria than bust upon the news of his approval.
Several applications to launch Bitcoin ETFs are currently waiting SEC approval in the US. The list is growing, and products such as Fidelity’s Wise Origin Bitcoin Trust, WisdomTree Bitcoin Trust, Valkyrie Bitcoin Fund, and more, are waiting like dogs at the gate. Gensler was questioned during hearings for the SEC chairman position and made his position ever clearer about crypto assets.
We leave you with Gensler’s words that, “markets — and technology — are always changing. Our rules have to change along with them … Financial technology can be a powerful force for good — but only if we continue to harness the core values of the SEC in service of investors, issuers, and the public.”
