The Sheriff of Cryptoville Draws His Pistol

When Gary Gensler was sworn in as SEC Chair in April of last year, many in crypto celebrated. The general reasoning: He had taught a course called “Blockchain and Money” at MIT in 2018, so he must be friendly to crypto.

They aren’t celebrating now.

As I cautioned in multiple segments on Yahoo Finance last summer, teaching one class did not necessarily mean he was a fan of crypto. Now, after 16 months on the job, I think it’s safe to conclude that indeed, he is not a fan. (It is somewhat puzzling now to watch him talk animatedly about how blockchain could be “a catalyst for change in the financial sector” in his introductory lecture to the class in 2018.) In the eyes of the crypto industry, he began as a wild card, became a figure of concern, and is now a proud villain.

Mike Novogratz, speaking to me onstage at Messari Mainnet last September, said Gensler “wants to be the sheriff of Cryptoville.” Now the sheriff has his guns drawn.

He has already spent the past year making very clear through his rhetoric that he views pretty much all tokens other than Bitcoin as securities. (He has avoided giving his own view on Ethereum.) Now the rhetoric is turning to enforcement. Last month, the SEC fingered nine tokens listened on Coinbase as securities, and reportedly launched an investigative probe into the company. Last week, it sued blockchain platform Dragonchain for its $16.5 million ICO (initial coin offering) back in 2017.

The message is clear: all those token sales from the ICO boom are on notice. Gensler is coming. In 2018, Decrypt reported on a secret SEC subpoena frenzy against ICOs that was happening behind closed doors. That hunt has either begun again now or never stopped.

As far as a spot Bitcoin ETF goes, the publicly traded investment vehicle that would let regular investors buy BTC over the stock market, don’t hold your breath. After the SEC allowed a Bitcoin futures ETF last October, there was some hope that it was the first stop on the road to allowing a spot ETF. Ten months later, it has approved a handful of additional futures ETFs, but no spot. This week, it punted on VanEck’s spot ETF for the umpteenth time.

Some prominent people in crypto have been careful to curb their criticism. Wyoming Sen. Cynthia Lummis, speaking on our gm podcast in June, said circumspectly, “I stay in touch with with Chairman Gensler. I think that he is very knowledgeable… And I think he will end up being someone that the industry can work with.” Last month when I interviewed John Wu, president of Ava Labs, at an Avalanche event in Brooklyn, I asked him for his quick take on Gary Gensler and he joked, “Where’s my general counsel?“

Other crypto advocates have had enough, and are saying so—loudly.

Gensler’s latest Wall Street Journal op-ed included a call for crypto lenders “to come in and talk to SEC staff.” It was roundly mocked by people in crypto who point out Gensler’s SEC has had anything but an open-door policy. Mark Cuban tweeted in response, “Come in and talk to who? Set up an appointment how? You using Calendly these days? Since you understand crypto lending/finances, why don’t you just publish bright line guidelines you would like to see and open it up for comments?”

Cuban had also encouraged Coinbase, last fall, to “go on the offensive.” Coinbase CEO Brian Armstrong described the SEC’s approach as “intimidation tactics behind closed doors.” An op-ed in Forbes this week by tech consultant Roslyn Layton declares it’s “time to end the SEC’s ‘clarity’ charade on crypto” and urges Gensler to resign. LBRY, the decentralized publishing platform the SEC sued for $11 million last year for its token sale, tweeted last month that its settlement offer is “10 years in jail” for Gensler.

The crypto lenders that went under during the current crash did so because they had bad business models. But it would be a shame to see promising projects with real use cases get hamstrung by a draconian regulator unwilling to come up with a new set of modern rules for a cutting-edge industry.