An Open Letter To Gary Gensler: One Decision To Define Your SEC Legacy

Dear Mr. Gensler, 

You have not made many friends during your time as the Securities and Exchange Commission (SEC) chair. The SEC protects American investors and enforces regulations over U.S. capital markets. You’ve lobbied to expand that agency’s powers, including new rules and offices across the country. But, many people believe you have not been up to the task. For instance, one member of Congress proposed to lower your salary to a paltry $1 as part of an attempt to defund the SEC. 

All the while, you’ve certainly had a busy year, as evidenced by your agency’s enforcement actions against Binance, Coinbase, and Kraken. Your agency’s view on those cases is clear. Crypto trading should be treated similar to securities trading in general. Therefore, crypto exchanges should not be allowed to act as exchanges, brokerages, and clearinghouses all under one roof, despite the fact that might not be possible with blockchain technology. 

When you were appointed by Joe Biden to lead the SEC, the crypto industry grew unreasonably optimistic. Whereas your predecessor Jay Clayton practically ignored digital assets altogether, you had taught an MIT blockchain course in the past. If anyone could regulate cryptocurrency in a sensible manner, it seemed to be that it would surely be you. It turns out, crypto enthusiasts in the US were wrong. 

A few years later, the industry lamentingly finds itself in a more precarious position than ever before. You’ve seemingly taken advantage of US Congress’ failure to act on crypto legislation and have chosen to regulate via enforcement, rather than work with the legislative branch on sensible legislation that propels the US to world leader status in an exciting new industry where it belongs. There has been no constructive rulemaking or guidance. 

Along the way, you’ve faced some pushback from the judicial branch.  Your agency was reprimanded by a federal judge over “materially false and misleading representations” in a case where millions of dollars in assets were frozen. The court wants an explanation, and is even contemplating sanctions reportedly for a breach of trust. 

And then there’s the pushback from your fellow regulators. While you argue that most tokens are securities, meaning the SEC has jurisdiction, the CFTC argues that certain tokens are commodities, and therefore should be regulated by that agency. One CFTC commissioner, Summer Mersinger, told Fortune that relations between the SEC and CFTC are now “more than a little bit strained.” 

As another CFTC staffer put it: “It’s like a horrible, dysfunctional marriage,” the person said. “Cooperation between our enforcement and their enforcement is essentially gone.” 

Additionally, Bloomberg reported that your rate of getting rules adopted was the slowest in decades. The Securities Industry and Financial Markets Association reported that you issued 62% and 91% more rule proposals, respectively, compared with your two predecessors in just your first 30 months in office. 

In 2023, your agency won only a partial victory against Ripple, which was widely covered. The cases you’ve brought against crypto companies have proven to be a mixed bag in terms of SEC successes, and many are now moving into the appeals process, where we’ll learn how the judicial branch interprets the ongoing crypto enforcements. 

Meanwhile, rumor has it you’re looking to become Treasury Secretary when that position becomes available. “Gary Gensler is a politician masquerading as a regulator,” Ritchie Torres, a Democratic congressman who supports the crypto industry, told Fortune.

Despite some of the setbacks you have faced at the head of the SEC, there is one move you could make that would go on to define your tenure in a positive light. And that would be to approve a Bitcoin ETF. At this moment, there are eight to 10 filings for possible exchange-traded products for bitcoin on your desk awaiting to go to the five-member commission to judge. 

Cathie Wood’s ARK Invest application is at the top of the docket. The 240-day SEC comment period ends Jan. 10, 2024 and a decision is due that day. BlackRock, Bitwise, WisdomTree, Fidelity, and Invesco follow. The Bitcoin industry is optimistic. After all, you chose not to appeal a court filing that the SEC was wrong in rejecting Grayscale Investments to convert its existing bitcoin trust into a spot Bitcoin ETF, asking the SEC to reconsider. 

There is less than one year before Republicans could take control of the White House and replace you. Alongside all of the environmental, social and governance regulations you likely intend to finalize, approving a Bitcoin ETF could be a defining moment in your career and lead to many great opportunities not only for you professionally, but also for an exciting new industry under your jurisdiction that wants to be compete globally. 

Sincerely,

Kadan Stadelmann 

Kadan Stadelmann

Kadan Stadelmann is a blockchain developer, operations security expert and Komodo Platform’s chief technology officer. His experience ranges from working in operations security in the government sector and launching technology startups to application development and cryptography. Kadan started his journey into blockchain technology in 2011 and joined the Komodo team in 2016.