Gary Gensler doesn’t seem to be having a great 2023. The chairman of the Securities and Exchange Commission (SEC) and the agency itself have recently suffered some significant blows in court when it comes to crypto industry enforcement. This raises a question: Can Gensler exit with certain conditions or in some other way before his term officially ends in 2026?
The latest blow to the SEC came when an appeals court cited inconsistencies in the agency’s reasoning for denying a Bitcoin exchange-traded fund (ETF) conversion requested by Grayscale. The SEC had previously approved ETFs based on Bitcoin futures contracts. However, the agency couldn’t explain why it wouldn’t do the same for a spot ETF. Therefore, the court handed a victory to Grayscale. On August 30, Senator Warren Davidson (R-OH) renewed his calls for Gensler to resign.
An even bigger blow to the SEC was its loss against Ripple. The preliminary court ruling challenged the SEC’s broad claim that most cryptocurrencies are securities. The court determined that XRP wasn’t a security when sold to investors on an exchange, delivering a major win for the industry.
While the courtroom drama is not yet over, a final defeat in the Ripple case could be devastating for the SEC. More importantly, each negative ruling exposes flaws in the agency’s legal theories and enforcement strategies under Gensler’s leadership.
Gensler has tried to portray the SEC’s actions as natural extensions of existing laws. However, dissenting judicial opinions give credence to arguments that the blockchain industry requires urgent modernization of outdated regulations.
The SEC will soon face critical tests through sanction actions against major exchanges Binance and Coinbase. These giants with deep pockets have clearly taken a confrontational stance against the SEC.
A previous SEC complaint against the smaller exchange Bittrex resulted in a relatively modest settlement with Bittrex exiting the US market. However, the SEC’s complaints against Binance and Coinbase resemble the Bittrex case, indicating that these major firms may try their luck in court.
The SEC failed to fully execute the asset freeze it sought against Binance. The agency later took the unusual step of filing a sealed petition, possibly indicating a larger case involving the Department of Justice. This string of legal defeats also signals potential vulnerability for the agency. Regulated entities may perceive reduced risks associated with challenging the SEC’s authority and interpretations.
Companies often settle when they are certain that a court battle would be futile or overly burdensome. However, the SEC’s losses could encourage firms to try their luck in court instead of capitulating to the agency’s demands.
The SEC chairman is nominated by the President of the United States and must be confirmed by the Senate. The chairman’s term is five years. Hugo Volz Oliveira, Secretary and founding member of the New Economy Institute, said in an interview that Gensler has been the most active chairman since 2009.
“And especially recently, he has been the most active SEC chairman without congressional authority. This is not just about crypto, but about every kind of market participant being dissatisfied with this leadership. This is far more important than the numerous court failures regarding the oversight of the US crypto market. Overall and outside the crypto bubble, many people believe that Gensler is ineffective and solves insignificant problems that have no real-world impact.”
Mark Lurie, CEO of Shipyard Software, expressed doubts about Gensler being ousted.
Gensler isn’t going anywhere because he isn’t driving the anti-crypto agenda, he’s just pursuing it on behalf of the Biden administration. The only way he would be ousted is if a new administration with a different agenda is elected.
So far, President Biden and Treasury Secretary Janet Yellen have been “very supportive” of the SEC under Gensler’s oversight. Despite widespread anger over his term, it doesn’t seem likely that Gary Gensler will be ousted under Biden’s watch.
However, among those vying for a potential vacancy is Rostin Behnam, the current chairman of the Commodity Futures Trading Commission (CFTC), who was appointed in January 2022. Gensler previously led the CFTC under the Obama administration, and some see this move as a stepping stone in Washington.
Another option if Gensler were to be ousted is Annette Nazareth, who serves on the advisory board of crypto mining firm Bitfury and is herself a former SEC commissioner. Nazareth is known as a moderate in Washington, and her appointment could offer an olive branch to the industry after months of heated legal battles.
Of course, if Gensler doesn’t leave before Biden’s term ends and Trump wins in 2024, the former president could nominate his successor with a different agenda. One of the leading candidates in this scenario could be Commissioner Hester Peirce, a Trump appointee and longtime advocate for the crypto industry who has written many dissenting views criticizing regulatory overreach.