Chairman Gensler Talks Crypto Regulation With Markets Magazine

Following the collapse of FTX, Chairman of the Securities and Exchange Commission (SEC) Gary Gensler (Gensler) went on record, addressing crypto regulation in an interview with Markets Magazine  December 1, 2022.

Gensler’s position is clear: the SEC intends to achieve what it sees as market integrity by insisting on their particular brand of transparency and disclosure, regardless of whether subject markets are traditional or emerging and decentralized, and regardless of whether the imposed infrastructure is considered appropriate or fair by the participants of subject markets: “It’s about full, fair and truthful disclosures. It’s ensuring that the inter¬mediaries aren’t defrauding or manipulating or misleading the public.”

The Chairman’s open invite “to come into compliance with the law and register with the SEC”, might seem like an overly simplistic solution to the problem, but Gensler’s view is that “nothing about the crypto markets is incompatible with the securities laws,” and further believes that: (1) given that the crypto market cap is approximately 1% of the general capital markets market value, implementing a new regulatory regime to serve digital assets is likely not worth the effort; and (2) the possibility of quantum computing cracking the cryptographic integrity of blockchains “is almost bound to happen”, dooming it to obsolescence, any investment whatsoever in providing regulatory structure or guidance would be wasted effort. 

Given the SEC’s mandated focus on investor protection and the uproar caused by FTX’s failure to comply with even fundamental investor protection principles, coupled with Gensler’s stated ambivalence and hostility to investing in regulatory clarity, it stands to reason that Gensler and the SEC will continue their campaign of regulation through enforcement, putting further strain on web3 projects.

Until there is a clear regulatory framework to work within, web3 projects will need to remain vigilant and responsive to the guidance that can be gleaned from enforcement actions while simultaneously creating internal compliance infrastructures using analogous regulatory regimes. Depending on the specifics of a given project, companies may look to the European structures found in MiCA for guidance or to the well-established guidelines and requirements imposed by FINRA on the entities within their purview.