Three Phases Detail How Gary Gensler Went From Crypto Ally to Industry Enemy

By Sam Lyman Compiled by Luffy, Foresight News

WASHINGTON, DC - SEC Chairman Gary Gensler has developed close ties with members of the House and Senate..

Who will watch over the Overseers?

This age-old problem has become even more important as the budget and size of the federal bureaucracy balloon.

But while the US government is developing, the influence of the fourth estate is also expanding. Social media has enabled a new generation of citizen journalists to hold public officials accountable by focusing on their past positions. In recent weeks, attention has been focused on Gary Gensler, chairman of the US Securities and Exchange Commission (SEC).

Members of Congress have been pressuring Gensler to change his stance on cryptocurrencies as the SEC ramps up its efforts to regulate cryptocurrencies. Contradictions between past and present statements by Gensler have surfaced on Twitter thanks to the work of professional journalists and amateur detectives. Together, this decentralized community dutifully watches over the Overseer.

what did they find Gensler's views on cryptocurrencies have changed significantly. Here's a timeline of his long journey from industry ally to adversary.

Phase 1: Allies (2018-2020)

While Gensler's recent enforcement actions have made him an industry enemy, that hasn't always been the case. Many crypto people once considered him a forward-looking regulator and friend. Before taking over the SEC, Gensler spent three years in academia, where he gained a reputation as a public leader who saw the innovative potential of cryptocurrencies.

2018

Gensler spoke to a group of hedge fund managers on the policy implications of nascent cryptocurrencies. In his speech, he made it clear that bitcoin, ethereum, litecoin and bitcoin cash "are not securities." Since these tokens accounted for the majority of cryptocurrency trading volume at the time, he stated that "probably three quarters of this market are not securities."

That same year, Gensler began researching digital assets at the Massachusetts Institute of Technology and taught the university's blockchain and cryptocurrency-related courses. There, he gave a speech that openly addressed the question: Are cryptocurrencies securities or commodities? His answer: "Both. I know it's not an answer that many people like, but that's where we are right now."

2019

Speaking at a fintech conference in New York City, Gensler spoke highly of Algorand and its lead developer, Silvio Micali (Gensler's colleague at MIT at the time). Gensler called Algorand's project "a great technology" and that the blockchain is so efficient that "you can create an Uber on it."

That same year, Gensler unsolicited to be an advisor on the cryptocurrency deal, and even held a special meeting with Binance CEO Changpeng Zhao in Japan, according to Binance lawyers. (So far, Gensler has not refuted this claim).

2020

Gensler taught his final course on blockchain and cryptocurrencies at MIT. His lectures are available online, leading many to believe that if he re-enters public service, he will take a pro-innovation approach to cryptocurrencies. With Biden elected president, speculation has grown that he will name Gensler as SEC chairman.

Phase 2: Skeptics (2021-2022)

Sure enough, President Biden appointed Gensler as SEC chairman. Many in the crypto community cheered Gensler's appointment given some of his past public statements and praise for various crypto projects. For example, Senator Cynthia Lummis tweeted: “While the SEC has a reputation as a black hole of innovators, Gary Gensler has recognized the potential of crypto assets.”

Indeed, with Gensler in office, the mood in the Capitol is sunny and optimistic. But soon after taking office, Gensler's attitude toward cryptocurrencies began to shift.

2021

In press statements and public comments about cryptocurrencies, Gensler’s tone has shifted from open to skeptical — and in some cases even hostile.

The head of the U.S. Securities and Exchange Commission has begun to signal the need for more regulation, calling cryptocurrencies a "wild west" rife with fraud. He further said: "I believe that in our current cryptocurrency market, many tokens may be unregistered securities."

Nonetheless, Gensler acknowledged that cryptocurrencies are still in a regulatory limbo. Congressional legislation would help provide greater clarity to the industry, he said, because “the exchange of these crypto assets has no regulatory framework in the SEC or our sister agency, the CFTC.”

2022

Gensler's tone hardened as he put more emphasis on the "Wild West" narrative. “Of the nearly 10,000 tokens in the cryptocurrency market, I believe the vast majority are securities,” Gensler said in a presentation to the institution in September. Just two months later, cryptocurrency exchange FTX went bankrupt, proving some of Gensler's claims correct.

Phase 3: Opponents (2023-present)

After the FTX fiasco, Gensler's skepticism turned to opposition. Tired of waiting for Congress to pass legislation, the SEC has instead taken an enforcement-regulatory approach, beginning a series of Wells notices and lawsuits against high-profile cryptocurrency exchanges.

There's just one problem: the new strategy requires Gensler to "swallow" all of his previous statements about cryptocurrencies.

2023

In an interview with New York Magazine, Gensler stated that “everything but Bitcoin” is a security, a marked departure from his 2018 statement that several major cryptocurrencies are not securities and that Many tokens have the characteristics of commodities.

Gensler stated that "the lack of regulatory compliance in the cryptocurrency market is not a lack of transparency," contradicting his own demand in 2021 for Congress to pass legislation to increase transparency in the cryptocurrency industry.

Although Gensler claimed in 2021 that cryptocurrencies lack a clear regulatory framework in the SEC, he now believes that "the law is clear" and that all cryptocurrency exchanges must be registered with the SEC.

Despite reports that Gensler offered to serve as an advisor to cryptocurrency giant Binance in 2019, the SEC is currently suing the company for alleged market manipulation and misuse of client funds. The SEC also sued Coinbase for listing "unregistered securities."

Speaking of unregistered securities, the SEC claims in the lawsuit that ALGO is just that. Remember, ALGO is Algorand’s native token, and Gensler hailed the protocol as a breakthrough technology in 2019.

Gensler's "Anchoring Strategy"

So why did Gensler suddenly reverse his attitude?

There is likely to be a coherent strategy behind his contradictory rhetoric.

A seasoned bureaucrat, Gensler knows more about how negotiations in Washington work than most. Effective policymakers employ a negotiating technique known as "anchoring," where their first proposal often falls far short of the desired outcome. (Think of Rep. Alexandria Ocasio-Cortez's "Green New Deal" or the initial $3.5 trillion price tag of Biden's "Build Back Better" plan).

These initial proposals are often outlandish and have little chance of becoming law. But they set a reference point for negotiations and make it look like the proponents are making major concessions as policy inevitably moves toward the middle.

This may be the logic behind Gensler's SEC action. By taking the hard line that “everything but bitcoin” is a security, he set the framework for negotiations to force Congress to act on legislation.

Cryptocurrency is more likely to be a "digital commodity"

Congress' response to Gensler was the McHenry-Thompson Act, which (far from labeling everything but Bitcoin as a security) proposed an entirely new asset class called "digital commodities." Many existing tokens fit the bill's definition of a digital commodity, so they would fall under the jurisdiction of the Commodity Futures Trading Commission (rather than the SEC).

The McHenry-Thompson Act is the most comprehensive cryptocurrency framework ever enacted by Congress. It has strong support in the House of Representatives but could face strong opposition in the Senate, where Democrats have shown respect for Gensler on many issues related to cryptocurrencies. So if this legislation passes this Congress, it likely won't be in its current form.

Another option for supporters of the bill is for Congress to be more crypto-friendly in 2025. But that's only if the industry can withstand another 18 months of severe SEC crackdowns. Rope tactics are risky in any situation, and even more so when you're up against a fighter as strong as Gary Gensler.