coindesk.com
Most Securities and Exchange Commission chiefs step down after a new president arrives, and for the crypto industry, Chair Gary Gensler's final moment is a point of high interest.
Digital assets leaders have battled him in court, and their friends in Congress have attacked Gensler for standing in the way of innovation, but his time is running low.
Gensler has options for how he wants to end things, and he still has some time left to engage in crypto policy and enforcement before he goes.
Someday soon, somebody besides Gary Gensler will be calling the shots at the U.S. Securities and Exchange Commission, and most of the crypto industry will rejoice.
More than any other figure in the U.S. government, this SEC chair played an unflinching antagonist to its aims. That no-holds-barred opposition to the way crypto companies want to do business is likely to cease, one way or another, in the coming year, when the securities agency gets a new boss.
But the countdown for Gensler raises a number of questions, leaving one final chapter of drama in his reign over crypto (and the rest of securities regulation in the U.S.). And if there's a common feeling among those who watch the SEC closely, it's uncertainty.
Gensler's five-year SEC term expires on Jan. 5, 2026, but tradition suggests a chair will step away if the opposing party takes the White House. Still, they don't have to. A second term for President Donald Trump doesn't mark an automatic end to Gensler's tenure. If he decided to make a stand, he could finish out his term as a commissioner and maintain a Democratic majority at the agency for as long as it takes for the new president to make appointments and the Senate to confirm them.
When recently asked by a reporter whether he'd resign if Trump won, Gensler laughed quietly and said he wouldn't comment on the elections. But he added, "Elections have consequences."
A former Goldman Sachs Group Inc. banker and Massachusetts Institute of Technology professor who lectured on crypto, Gensler has a deep well of financial and even digital-assets knowledge. And as the chair of the Commodity Futures Trading Commission after the global mortgage implosion in 2008, he cut his government teeth crafting novel, high-stakes regulation. But when he took the helm of the SEC in 2021 and found crypto on his plate, he made a consequential call: The SEC didn't need new rules. Existing securities law gave plenty of leeway to police this space.
That's not the general sense of the SEC's overseers in Congress. A big majority of the House of Representatives passed a bill earlier this year that would create rules specifically tailored for digital assets – including how the SEC should approach what would be a more explicitly defined array of crypto securities. And while that bill has languished because it still needs approval in the Senate, crypto did see a win in that chamber, too. A strong majority of senators voted this year to overturn a key SEC crypto accounting policy, showing they believed the agency was overreaching and rebuffing Gensler's arguments that the industry-targeting standard was a natural response to the crypto sector's investor-harming bankruptcies.
The lawmakers who make up next year's Congress, which will likely have at least two dozen members who can partly thank aggressive crypto campaign giving for their presence on Capitol Hill, is likely to be busy with digital assets. That's probably true no matter which party controls each chamber; Democrats look poised to have a majority in the House, according to electoral math and polling trends, while Republicans may win control of the Senate. But if the Democrats keep the Senate, crypto progress may remain challenged.
"I think there is a real chance that the legislation gets passed next year," Michael Piwowar, a former acting chair of the SEC, said during an interview with CoinDesk. That would create a "nice, legal regulatory framework" for crypto that puts the securities agency in a defined lane that leaves less room for the legal interpretations the SEC and crypto businesses are still fighting over in federal courts, he added. "There's not clear authority on some of these things, which is why Congress needs to get involved."
"Five years from now, we'll look back in the rearview mirror and say, 'Why couldn't we have done this sooner?'" Piwowar said.
Part of that answer – critics and allies would agree – is Gensler.
"Chair Gensler’s tenure at the SEC has been marked by missed opportunities," said Sheila Warren, who runs the Crypto Council for Innovation. She argued that Gensler has left U.S. businesses "operating in the dark" by leaning into enforcement rather than regulation. "A fresh start at the SEC is essential for the future of innovation in this country."
Regulation-by-enforcement
SEC Commissioner Hester Peirce, a Republican appointee who has been the most reliable crypto ally at the agency, has long been in open disagreement with the chairman's preference for whipping digital assets businesses into line by punishing them.
"It's a very bad approach to trying to regulate an industry, if you're trying to protect investors, if you're trying to shepherd the commission's resources well," she told lawmakers at a hearing of the House Financial Services Committee last month. "It's very inefficient, and at the end of the day, it leaves everyone wondering where the lines of our authority are."
But in the same hearing, Gensler again cited the so-called Howey test, the Supreme Court standard set in the 1940s (long before crypto and blockchains were even a dream) that decides whether an asset is a security. He's wielded it as his chief weapon in the SEC's epic enforcement battle with the industry.
"The time-tested protections are really important," he told the lawmakers, citing some of the recent federal court successes for his agency, while leaving out the setbacks. "One court said Howey provides clearly expressed tests for determining what constitutes an investment contract. Another court said the SEC based its claim on straightforward application of a venerable Supreme Court precedent. I could go on and on and read quote after quote from cases in the crypto field."
Most of the crypto space is breaking the law, according to the narrative he stands by, and its practitioners are threatening people's money with dicey business practices while they continue to evade compliance. Just last week, the SEC sued one of the biggest trading firms in financial markets (crypto and traditional assets alike), Chicago-based DRW, accusing the company of not getting proper permission to trade crypto assets. Gensler, who declined to be interviewed by CoinDesk for this story, has drawn that line in the sand and has spent years proving he won't budge from it.
"The U.S. securities laws have worked to protect investors for 90 years, and there’s nothing incompatible about the crypto field with these time-tested laws," an SEC spokesperson told CoinDesk.
So, what happens to Gensler and his crypto campaign after the presidential election next month?
Former President Trump, the Republican candidate for next month's election, basked in a massive surge of applause in July when he told attendees at a Bitcoin conference that he'd fire Gensler, so a Trump win would promise storm clouds for the SEC chair. When the opposing party takes the White House, an SEC chair usually steps down right away or – at the latest – when the new president takes office two months after Election Day.
"I don't think there's ever been a chairman who's ever stayed on when there's been a change of party," said Dennis Kelleher, CEO of Better Markets, a Washington-based advocacy group that's been critical of the hazards crypto poses to investors. (A Democrat, Joe Biden, currently resides in the White House.)
Could linger
But Jaret Seiberg, a financial-policy analyst with TD Cowen, suggests that Gensler – even if he vacates the top job – could stick around on the commission, where he'd sit alongside Democrats Caroline Crenshaw and Jaime Lizárraga. Crenshaw's term has expired, and President Biden sent her re-appointment to the Senate, but she hasn't yet been confirmed as the congressional session winds down. (In the absence of a replacement, an expired commissioner can stay on another 18 months.)
"Nothing forces him to leave," Seiberg wrote in an analyst note to clients in September. "We expect progressives to pressure Gensler to preserve Democratic policy wins by depriving the GOP of an SEC majority."
Kelleher, who said he'd be "more than pleased" if Gensler stayed on, sees strong odds against that scenario playing out.
"There would be tremendous value in Gary Gensler staying until the end of his term," Kelleher said. "Based on precedent and practice, it's extremely unlikely."
Without Gensler as chair, Trump could elevate either Republican commissioner – Peirce or Mark Uyeda – as acting chair while he seeks a permanent pick. That interim chair could start naming new department heads, including atop Gensler's cudgel – the enforcement division – and could change how the agency is pursuing pending legal cases. But until the commission has a third Republican confirmed, the Republicans wouldn't enjoy a majority that allows them to roll out new policies.
The crypto masses have generally favored a Trump presidency, especially after his full-throated embrace of the technology this year, though the U.S. government's adversarial relationship with the sector arguably started on his watch. It was his own SEC chair, Jay Clayton, who first pursued Ripple. Still, his recent rhetoric paints the government as standing in the way of innovation.
"If Trump wins, crypto wins," Daniel Gallagher, a former SEC commissioner, predicted when appearing at a recent event in Washington. Gallagher, whose name has appeared on lists of those who might be considered for replacing Gensler under Trump, has often spoken of his frustration as a senior lawyer at Robinhood Markets. He said the agency rebuffed the company as it tried to comply with SEC rules as a crypto platform.
If Vice President Kamala Harris beats Trump, the replacement of Gensler potentially carries less urgency. But even her guarded sentiments that her presidency would foster digital assets growth and new regulations suggest a course that diverges from Gensler, who argues his agency doesn't need new regulations.
Harris' campaign has held meetings with crypto insiders and privately convinced them that the vice president would reset industry relations that have ranged from stagnant to hostile under her current boss, Biden.
Either way, the "age of Gary Gensler" will soon end, declared Anthony Scaramucci, Trump's short-lived communications director who has become a vigorous critic of the former president.
"That era of crypto is ending," Scaramucci, the founder and managing partner at Skybridge Capital, said in a CoinDesk TV interview. "We're heading toward a much better regulatory framework no matter who wins the election."
Time left
Still, Gensler has some time left before the elections force his hand. Despite grumbling from the industry that his agency has refused to make rules tailored to crypto, he did set and defend crypto accounting policy in the form of what's known as Staff Accounting Bulletin No. 121, and the commission embarked on a few consequential rules.
In February, the agency formally widened its definition for what makes a securities dealer, a new standard that is meant to include crypto operations among businesses the agency regulates as broker-dealers – potentially including decentralized finance (DeFi). And the commission has pursued a couple of ongoing efforts that could hit crypto hard: One proposed rule expands the definition of "exchange" to encompass digital assets platforms in a way that also explicitly included DeFi, and another proposal would demand investment advisers only keep clients' crypto assets with "qualified custodians," which the agency suggested leaves out the big crypto houses such as Coinbase. However, that custody rule is heading back to the drawing board, SEC officials have said.
If Gensler and his colleagues pull the trigger on the exchange rule before he leaves, the nearness of the next congressional session in 2025 would give lawmakers an opportunity – as long as both chambers wanted to use it – to reverse anything the agency approves. That power is under the Congressional Review Act and is the same authority lawmakers in Congress tapped to try to erase the agency's crypto accounting rule, which drove President Biden to step in with a veto to stop them.
Trump's first administration embraced the CRA power as it had never been used before, but it tends to require a Congress that's friendly to the president.
Legal strategy
Meanwhile, for whichever candidate shows up in the White House in January, there will almost certainly be a lengthy transition period. Rulemaking and enforcement cases are time-consuming endeavors, and an overhauled SEC inherits a great deal of work already mostly finished before new commissioners arrive. An incoming chair – and potentially new top legal officials, such as the general counsel and the enforcement director – would have a lot of triaging and decision-making to do on a herculean heap of court cases.
Some of the foundational crypto cases, such as those targeting Ripple and Coinbase, could be elevated in the coming year through appeals as they potentially wind their way toward the Supreme Court, where Gensler's legacy may truly be decided. New management would have to work out how they want to proceed with those.
Even if the agency is beat back by court losses or new laws from Congress that restrict its jurisdiction, the SEC will always have a major role in the U.S. crypto sector. Kelleher said that role will inevitably clash with the industry, because the regulator's first job is to protect investors, not businesses.
And he cautioned the crypto world from seeing Gensler as a villainous Wizard of Oz behind everything it doesn't like, because Kelleher contended that the commission chair has actually done more for the industry than anybody in government. After losing his court battle to prevent the creation of spot bitcoin exchange-traded funds, Gensler acknowledged the loss and went against his two fellow Democrats to side with the Republican commissioners in approving the consequential ETFs.
"I think Gensler's legacy on crypto is going to be the one guy in government who literally almost single-handedly did more to legitimize and mainstream crypto than anyone else," Kelleher said.