Gary Gensler, the Biden administration’s nominee to head the U.S. Securities and Exchange Commission (SEC), has highlighted “investor protections” as priorities for the digital asset industry. Gensler is currently undergoing confirmation hearings before the Senate Banking Committee, and is likely to be confirmed.
Gensler praised Bitcoin and other blockchain/digital assets as bringing “new thinking to payments,” but cautioned they also created new investor protection issues. It was the SEC’s role to promote and permit innovation in these new technologies, but the industry needed far clearer guidelines on what was permissible… or not.
Notably, Gensler has signaled in the past that he sees a clear difference between a user-created “decentralized asset” like Bitcoin, and digital assets created and issued in a more organized fashion by companies. There is a “strong case” that the latter assets (which include Ripple’s XRP and Ethereum‘s ETH) could violate securities laws.
Ripple case could be first of many to come
In January, we noted that Gensler’s rumored nomination for SEC head (since made official) could mean tough new rules for the blockchain and digital asset industry. Observers have noted his preference for clarifying specific rules for investments and finance, and in the past he has pursued banks he found were manipulating interest rates.
Gensler was a Goldman Sachs employee and a former Chairman of the Commodity Futures Trading Commission (CFTC), as well as having held various government posts in the Clinton and Obama administrations.
The SEC has already pursued Ripple (the company) over its creation and issuance of XRP, the currency unit on its consensus network. Though the regulator has said it considers XRP an unlicensed digital security, Ripple has remained defiant as it begins a trial—with both parties saying a settlement before a court judgment is unlikely.
Anyone involved in organizing an initial coin offering (ICO) during the 2017-18 blockchain token boom may be feeling nervous at the prospect of a Gensler-led SEC. Despite its recent regulatory problems, XRP has remained in the “top ten” digital assets by market cap, which even today rose to over US$21 billion. However most other ICO tokens saw their values plummet as investors saw little utility value in owning them, dumping them alongside their creators who viewed them mainly as fundraising or “pump and dump” schemes.
As token-creation grows on Bitcoin BSV platforms, Dr. Craig Wright has cautioned that tokens should only represent ownership of assets or processes that exist elsewhere, rather than being speculative assets themselves.
Gensler hints at other ‘investor interest’ regulations
In answers during his Senate confirmation hearing, Gensler also hinted at forcing companies to disclose further information about their workplace diversity, climate risks, and political spending. He also expressed concern over issues related to the recent GameStop/hedge fund trading controversy, and the gamification of investments under retail-investor apps like Robinhood.
To the issues above, he again cited investor interest as reasons for focusing on these issues. They were also issues that investors may consider significant or material to their choices, Gensler said after facing a question over their relevance. The SEC’s current rules on “climate risk” disclosure are from a decade ago, and the U.S. has laws that ban (or protect) companies from disclosing their political dealings.
This move towards investor (and other types of) activism in the SEC’s rules are likely to have a large impact on their future actions. They are also likely to alter the behavior of many in the digital asset industry. Many are realizing that blockchain records are permanent, and that regulators like the SEC are interested in pursuing even historic cases where investors suffered losses.
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups-from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple and Ethereum—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.
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