As has been widely reported, President Biden has nominated Gary Gensler to be the next chairman of the Securities and Exchange Commission. After becoming one of the youngest partners at a leading Wall Street investment bank, Gensler transitioned into government service as a senior official in President Clinton’s Treasury Department and as the chairman of the Commodity Futures Trading Commission under President Obama. While at the CFTC, Gensler was the principal architect of the sprawling Dodd-Frank Act’s provisions regulating the swaps markets, and he worked tirelessly to implement new CFTC rules regulating the space. He has deep experience both in the financial markets and as a regulator.
Currently, Gensler teaches on blockchain technology, digital currencies, financial technology, and public policy at MIT. Both his prior professional experience and his current interests in blockchain and digital assets have become topics of much discussion in the crypto community. But what should the crypto community expect of Mr. Gensler as SEC chair?
Those in the crypto community who are optimistic that Gensler will significantly reimagine the SEC’s approach to regulating digital assets are likely to be disappointed. In particular, we believe there is a low probability that he will revisit the SEC’s fundamental approach to treating most digital assets as securities under the Howey test. Gensler’s resume as a regulator shows he tends to favor more regulation, not less, and he will likely feel political pressure to continue this approach at the SEC.
Instead, we may expect Gensler to bring a more nuanced view to some of the SEC issues at the margin impacting digital assets. Issues like custody of digital assets and issuance of ETF products are ripe for further development, and there is a good chance that Gensler will take up these sorts of issues in due course. Whether he will show more flexibility to facilitate decentralization of DAO products remains to be seen. On the other hand, we do not expect him to show a “lighter touch” when it comes to the SEC’s enforcement agenda concerning issuers and market intermediaries effecting transactions in digital securities.
The new Congress is also likely to consider a range of new bills on blockchain and digital asset issues over the next two years. Again, we expect Gensler to closely monitor that process and play a leading role. During the drafting of the Dodd-Frank Act, Gensler was a force of nature. He spent long hours at the Capitol, meeting with countless Members of Congress and their staffs, and he personally helped draft key provisions of the bill. He is clearly a skilled political operator, understands the inner workings of Congress, and is not likely to be blindsided by the adoption of any bill regarding the SEC with which he does not agree. Conversely, he has proven to have the skills to pass a bill should he see the need to do so.