Cryptocurrencies Face Greater Oversight Under Gensler-Led SEC

(Bloomberg) -- Gary Gensler’s expected nomination to lead the U.S. Securities and Exchange Commission is seen ushering in an era of greater federal oversight of the $1 trillion cryptocurrency market.

Gensler, who most recently taught about cryptocurrencies and their underlying technologies at the Massachusetts Institute of Technology, previously chaired the Commodity Futures Trading Commission and was a partner at Goldman Sachs Group Inc. He is known for pushing back at banks and corporations in search of greater investor protections.

In talks and editorials over the last several years, he’s advocated for a nationwide way to register and monitor cryptocurrency exchanges, instead of leaving oversight to the states. That could have implications for online exchanges like Coinbase Global Inc., which is planning to go public. The SEC is also likely to continue to go after thousands of initial coin offerings, as Gensler has said he believes that most of these digital tokens are unregistered securities.

“It is good to have an ex-banker in there who is smart enough to recognize the value of Bitcoin and other cryptocurrencies to building wealth and value in society,” said Tim Draper, a billionaire venture capitalist who is a large investor in cryptocurrencies. “He will understand the importance of allowing innovation, while watching over banks who might try to restrain trade by blocking the use of superior currency.”

In a 2018 Bloomberg Television interview, Gensler said that the pure-cash cryptocurrencies like Bitcoin would “need more protection.” The world’s biggest cryptocurrency by market capitalization quadrupled last year, and has continued to surge in volatile trading since the start of 2021.

Gensler has also advocated for greater regulation of cryptocurrency exchanges. He didn’t respond to a request for fresh comment.

“If it gets broad adoption, if we really think the crypto world is going to be part of the future, it needs to come inside of public policy envelope,” Gensler said in the 2018 interview. “That means we need to guard against illicit activity. And yes, we need to protect investors. The crypto exchanges, big exchanges like Coinbase, need to come within the SEC or the CFTC.”

Greater oversight could lead to greater mainstream adoption, he said.

“I would say, you want some form of regulation, you want traffic lights and speed limits, because then the public is confident to drive on the roads,” Gensler said in the 2018 Bloomberg interview.

He has also long railed against illegal offerings of securities, which the SEC has been actively pursuing. In December, the agency filed a lawsuit against Ripple Labs Inc. for issuing more than $1 billion in unregistered tokens XRP. In a 2019 keynote at Harvard Law School, Gensler said “I don’t think the SEC is going to leave many ICOs off the hook.”

In his 2019 Congressional testimony, Gensler appeared to favor projects like Facebook-led Diem, which used to be called Libra -- an effort to create a cryptocurrency for payments. But he did suggest that the effort may need to have banking regulations applied to it.

“Gary is extremely dialed-in on the crypto markets and understands them extremely well,” said Nic Carter, co-founder of researcher Coin Metrics. “If his stated views are any indication of his priorities as commissioner, I would expect the SEC to continue with or even accelerate its agenda of discouraging unregulated securities issuance in the form of tokens.”