The Sheriff of Cryptoville draws his gun

When Gary Gensler was sworn in as SEC Chairman in April of last year, many in crypto celebrated. The general reasoning: He had taught a course called “Blockchain and Money” at MIT in 2018, so he must be crypto friendly.

They don’t party now.

As I warned in various segments on Yahoo finance last summer, teaching a class didn’t necessarily mean he was into crypto. Now, after 16 months on the job, I think it’s safe to conclude that indeed he’s not a fan. (It’s somewhat confusing now to see him talking animatedly about how blockchain could be “a catalyst for change in the financial industry” in his class introductory lesson in 2018.) In the eyes of the crypto industry, he started out as a wild card, grew into a figure of concern, and is now a proud villain.

Mike Novogratz, speaking to me onstage at Messari Mainnet last September, said that Gensler “wants to be the sheriff of Cryptoville.” Now the sheriff has his guns drawn.

He has already spent the last year making it very clear through his rhetoric that he considers just about every token other than Bitcoin to be securities. (He avoided giving his own take on Ethereum.) Now the rhetoric turns to the app. Last month, the SEC identified nine streamed tokens on Coinbase as securities and reportedly launched an investigative probe into the company. Last week, he sued blockchain platform Dragonchain over its $16.5 million ICO (initial coin offering) in 2017.

The message is clear: all of these ICO boom token sales are on notice. Gensler arrives. In 2018, Decrypt reported on a covert SEC subpoena spree against ICOs that was happening behind closed doors. This hunt started again now or never stopped.

When it comes to a spot Bitcoin ETF, the exchange-listed investment vehicle that would allow regular investors to buy BTC on the stock market, don’t hold your breath. After the SEC cleared a Bitcoin futures ETF last October, there was some hope that this was the first step on the road to clearing a spot ETF. Ten months later, it approved a handful of additional futures ETFs, but none. This week, he bet on VanEck’s cash ETF for the umpteenth time.

Some crypto figures have been careful to tone down their criticisms. Wyoming Senator Cynthia Lummis, speaking on our gm podcast in June, said cautiously, “I’m keeping in touch with President Gensler. I think he’s very capable…And I think he’s will end up being someone the industry can work with.” Last month, when I interviewed John Wu, president of Ava Labs, at an Avalanche event in Brooklyn, I asked him for his quick take on Gary Gensler and he joked, “Where’s my general counsel ?”

Other crypto advocates have had enough and are saying it out loud.

Gensler’s Last the wall street journal editorial included a call for crypto lenders “to come talk to SEC staff.” He was downright mocked by people in crypto who point out that Gensler’s SEC had anything but an open door policy. Mark Cuban tweeted in response, “Come in and talk to who? Set up a date how? You using Calendly these days? Since you understand crypto lending/finance why don’t you just post clear guidelines that would you like to see and open it for comments?”

Cuban also encouraged Coinbase last fall to “go on the offensive.” Coinbase CEO Brian Armstrong described the SEC’s approach as “bullying tactics behind closed doors.” An editorial in Forbes this week by tech consultant Roslyn Layton says it’s “time to end the SEC’s ‘clarity’ charade on crypto” and urges Gensler to step down. LBRY, the decentralized publishing platform that the SEC sued for $11 million last year for its token sale, tweeted last month that his settlement offer is “10 years in prison” for Gensler.

Crypto lenders that went bankrupt during the current crash did so because they had bad business models. But it would be a shame to see promising projects with real use cases being crippled by a draconian regulator unwilling to come up with a modern new set of rules for a cutting-edge industry.

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