Earlier in the current month, I had the chance to engage in a conversation with Gary Gensler, the Chair of the U.S. Securities and Exchange Commission (SEC). CoinDesk has acknowledged him as one of the crypto industry's most influential figures in the past year. The discussion centered around Gensler's perspective on the role of his agency in the realm of digital assets.
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A Model of Noncompliance in Business
The Story
The crypto sector is not without its share of questionable—or perhaps poorly managed—participants. This fact has become increasingly evident over the past year. In my recent reporting for this year's Most Influential series, I had the opportunity to interview SEC Chair Gary Gensler earlier this month.
Why It's Significant
Gensler, along with the SEC, remains a pivotal regulatory force in the U.S. crypto industry. This prominence is justified, as many crypto companies, while seeking state money transmitter licenses and compliance with anti-money laundering regulations, find themselves under the SEC's purview (or not, depending on who you ask) when it comes to trading activities.
Breaking it Down
According to the SEC chief, crypto entrepreneurs have, for the most part, "built a business model around noncompliance with the law." Gary Gensler, a figure both favored and contested within the industry, has been recognized by CoinDesk as one of crypto's most influential figures through 2023. In the past year, his agency initiated lawsuits against major crypto exchanges such as Coinbase, Binance, and Kraken. Additionally, the SEC began reviewing a new set of applications for spot bitcoin exchange-traded funds (ETFs) and outlined a still-untested pathway for companies to list and trade digital assets in alignment with the SEC's vision of fitting within existing legal frameworks.
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However, according to Gensler, much of his attention is focused on addressing a field riddled with fraud, where some companies neglect to safeguard their customers against issues like wash trading. This perspective has been reiterated by Gensler on multiple occasions, citing the bankruptcies of the past 18 months as examples.
While expressing "deep respect for the investing public," Gensler emphasized his belief that crypto investors are not receiving adequate disclosures from the projects they invest in. He pointed out the prevalence of "far too many frauds and bankruptcies" in the crypto space.
For more insights, read: Gary Gensler: The Crypto Lightning Rod Who Runs the SEC
Within the crypto domain, Gensler highlighted concerns such as companies commingling customer funds (a concern evident in some of the SEC's complaints against crypto companies this year) and engaging in trading practices against their own customers. The SEC is in the process of reviewing several rules that could impact the crypto industry, although Gensler refrained from preemptively judging them when queried about specific examples.
Gensler underscored the significance of entrepreneurs in the sector, noting their substantial online followings on platforms like Reddit and Medium. He also questioned the real value proposition of most tokens deemed crypto securities.
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"If there's a good or service, we can understand that," he remarked. "What's the value proposition of actually having a decentralized token?" Gensler classified many projects as "speculative investment contracts," including bitcoin, widely seen as a commodity.
Investors, Gensler cautioned, should exercise caution and be prepared to lose 100% of their assets. He suggested that if a project is featured on a website or covered by CoinDesk, investors are essentially placing bets on the entrepreneurs behind those projects.
Stories You May Have Missed
Elizabeth Warren Pushes Back at Blockchain Lobbying Efforts: U.S. Senator Elizabeth Warren (D-Mass.) has addressed letters to the Blockchain Association, Coin Center, and Coinbase, inquiring about the association of former government employees or elected officials with these trade groups and exchanges. The senator has requested the disclosure of the officials' names and their previous roles.
A New Kind of Insider Trading? Hegic's DeFi Bets Might Attract SEC's Attention, Experts Say: The pseudonymous developer behind the crypto options trading platform Hegic appears to have acquired a significant portion of tokens linked to another platform they developed, Whiteheart, before announcing the shutdown and liquidation of Whiteheart's treasury. This move led to a surge in price, potentially resulting in substantial profits for Hegic.
Crypto Trader Turns $1K Into $100K on Solana’s Newest Memecoin, Dogwifhat: We've entered what I like to call the silly season. People are engaging in arbitrage involving various unconventional assets. One example is a trader turning $1,000 into $100,000 by investing in a meme coin on the Solana blockchain. Check Danny's profile for more instances of pouring money into assets with the hope of quick returns.
Wrapping up 2023
Next week, in line with our tradition, CoinDesk's Regulation Team will share their expectations and key areas of focus for the upcoming year. However, we also want to hear from you, our readers. If you'd like to contribute your thoughts on what to watch or expect in 2024 for a future edition of this newsletter, please email me a brief (100-200 words) explanation along with your name or handle and your interest in crypto.
This Week
soc 121923
This Week
There don't appear to be any noteworthy hearings or events scheduled for this week.