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Gary Gensler, the new chairman of the Securities and Exchange Commission (SEC), validated the invention and legacy of bitcoin in his first speech on the subject on August 3. Speaking of his most recent career as a professor of practice at the Massachusetts Institute of Technology (MIT). Global Economics and Senior Advisor to the MIT Digital Currency Initiative, Gensler said, “… I have come to believe that while there has been a lot of hype disguised as reality in the crypto arena , Nakamoto’s innovation is real. In addition, he has been and could continue to be a catalyst for change in finance and money.
Gensler is well known in the financial industry for his tenure from 2009 to 2014 as former Chairman of the Commodity and Futures Trading Commission (CFTC), where he developed derivatives regulation at the agency after the global financial crisis. . As a successful Goldman Sachs investment banker for two decades, Gensler was a key member of Biden’s transition team where he helped develop plans for U.S. financial regulators.
The speech at the Aspen Security Institute came just days after the Senate called national attention to the debate over IRS tax reporting requirements for digital currencies and a new bill to the United States House of Representatives. Just days after Gensler’s bitcoin and industry statements, an SEC enforcement action against Poloniex for operating as an “unregulated digital asset exchange” made it clear that there was a new sheriff in the city of cypherpunks.
Guess me this, Nakamoto
As a mainstream thought leader in the financial services industry, Gensler cemented the critical importance of bitcoin to the future implications of global financial markets in his speech. Proving his deep understanding of both technology and historical context, Gensler said, “Nakamoto had solved two puzzles that had haunted these cryptographers and other tech experts for two decades: First, how to move something of value onto Internet without central intermediary; and related, how to prevent the “double spending” of this precious digital token. “
Gensler spoke about what he saw as Nakamoto’s primary focus. “Basically, Nakamoto was trying to create some form of private money without a central intermediary, like a central bank or commercial banks,” Gensler said. However, he did not consider bitcoin to yet meet the standard of money as a unit of account, store of value, or medium of exchange. “Primarily, crypto assets provide digital and scarce vehicles for speculative investments. So, in this sense, we can say that they are highly speculative stores of value. ”
Stating that he is “technologically neutral” when it comes to crypto assets, Gensler has made it clear that he is anything but neutral when it comes to “public policy” and that he listens the most to investor protection. Describing the new asset class, Gensler warned that the industry was “… plagued by fraud, scams and abuse in certain applications.” There is a lot of hype about how crypto assets work. More importantly, he focused on the issue of investors’ inability to obtain “rigorous, balanced and complete information.” To put it bluntly, Gensler said, “I’m afraid a lot of people will get hurt.”
Are you feeling lucky Cypherpunk?
Dirty Harry, a famous fictional detective played by Clint Eastwood in the 1970s, taunts an injured suspect by asking if he “feels lucky, punk?” going to get his weapon. The Eastwood character began by asking, “Did he fire six shots or just five?” Now, to tell you the truth, I forgot myself in all of this excitement.
Losing track of the tokens listed by a crypto asset exchange can be a similar type of mistake based on Gensler’s speech. “While the legal status of each token depends on its own facts and circumstances, the probability is quite low that with 50 or 100 tokens a given platform has no title,” Gensler said. He doubled down on this statement in the question and answer period that the moderator had said “exploded” when he again said “… not succeeded …”
The moderator commented that the Q&A exploded with questions based on those remarks; However, Gensler stressed his agreement with former SEC chairman Jay Clayton, even though he was in the previous administration. While noting that “regulation by application” would continue in the markets, Gensler also encouraged platforms to “enter and register” with the SEC.
The Way Forward: Is Digital Barbed Wire Coming to the Wild West of Trading?
Gensler’s comments that “per-app regulation” would continue was quickly followed by the “Poloniex Order,” an SEC press release where an exchange listing 75 tokens was cited as a “digital asset swap. not registered ”. While this was not unexpected in the case of this old exchange that settled with the SEC for over $ 10 million, the enforcement order was a signal to the market that the exchanges in a similar situation could expect the same.
“Bitcoin-only” exchanges may benefit, while exchanges that list 100 or more tokens will need to recognize the danger of the SEC declaring them an “unregistered digital asset exchange” for trading in “digital asset securities”. . It’s unclear how long Gensler’s “open door” policy for exchanges discusses how an exchange might either register as a stock exchange with the SEC or seek an exemption, but the timing of the Poloniex ordinance was not mistaken that Gensler was not “neutral for public policies” and protecting investors.
Where does that leave Bitcoin?
What will likely be a crackdown on digital asset and token trading over the next five years of Gensler’s SEC tenure is likely a repeat of what he did at the CFTC for derivatives. Viewing the SEC as primarily responsible for overseeing the industry, the crypto-asset industry will have to contend with the impact of investors – whether or not a given digital asset is considered security.
One area Gensler pointed out to is environmental, social and corporate governance (ESG) risk, or climate change. In his Q&A, Gensler said, “Bitcoin mining takes place primarily in China. Much of that is starting to change … but the question is whether this is done with a lot of electricity thanks to dirty coal in theory and also proof of work. In my opinion, the SEC has and rightly put a lot of emphasis on climate change and disclosures. Next, Gensler questioned whether SEC-registered companies holding bitcoin should publicly disclose it to the SEC. While he said he was reserving comments for SEC staff who were preparing a draft text, he still asked the question: “Are you going to require companies, for example, to disclose if do they hold crypto-currencies that have a significant environmental impact? ”
Bitcoin’s legacy, if Gensler continues with the policies it has set out, will likely be enshrined as a breakthrough invention that’s here to stay – and the outlook looks good for “bitcoin-only” exchanges that are conservative in their approach. However, regular updates and educational material that can be provided to the SEC on developments around renewable energy and other innovations by bitcoin miners who achieve carbon neutrality will be essential in helping the SEC’s decisions on climate change disclosures; and the type of reporting that may be required by state-owned companies.
This is a guest article by Jason Brett. The opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
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