The U.S. Securities and Exchange Commission is entering its summer. The crypto industry is reeling from the agency’s recent actions against the world’s leading exchanges – Coinbase and Binance.

Major players are moving quickly. Crypto.com has announced that it will close its U.S. institution business because of “limited demand.” Robinhood spoke last week at a House crypto hearing about the complete lack help it received by the SEC when it came to registering as a broker for digital assets.

Dr. Paolo Tasca, professor and economist in the University College London is the founder of DLT Science Foundation and member of ISO’s blockchain technical committee. He is a consultant to several companies including Hedera Hashgraph, INATBA and others.

There is much more that can be explored. Gary Gensler is the current chairman of the U.S. Securities and Exchange Commission.

Robinhood, eToro, and other major brokerages have begun delisting some of the biggest blockchain projects. Gary Gensler, SEC chair, has questioned the security of many of these projects that use proof-of stake (PoS), which is a network-security algorithm.

It is enough to say that the scrutiny is increasing.

Crypto sector is wondering why Gensler has taken a tough stance against the cryptocurrency industry compared to previous leaders. There are many problems in the cryptocurrency space. Between January 2021 to March 2022, the Federal Trade Commission reported that victims lost over 1 billion dollars in cryptocurrency scams. This statistic is still nine times lower than the total losses from security scams in 2022.

Gensler is following the “nine-over-one” rule, which means he spends 90% of his work time policing crypto, a sector responsible for only 10% of all scams in the financial industry.

What evidence and information does Gensler use to make his decisions about the SEC? What future SEC action can we anticipate? What has caused him to change his mind so drastically? Why is a government official using social media to share content relating to crypto, while showing emotional investment and personal satisfaction?

Recently, I rewatched a conversation between Gensler and CoinDesk’s Managing Editor of Global Policy and Regulation Nikilesh De. He interrupted De abruptly, insisting three times that all cryptocurrencies were securities. Any government official, especially the SEC chairman, should maintain impartiality and emotional detachment in their duties.

Twitter, Reddit, and other sites have been flooded with conspiracy theories about SEC motives as speculation continues to grow. Gensler and Sam Bankman Fried’s relationship is in question. There are also reports that Gensler was rejected for advisory positions with Binance. Gensler doesn’t need to be working with SBF, or acting out of spite, to have his thinking questioned.

The SEC has cleared the way for Prometheum, and a few other firms founded by insiders in the regulatory world, to become the primary dealers for digital assets. Prometheum holds a license for an alternative trading system that will list “digital assets securities”. However, it is unlikely that any cryptocurrency will ever meet this regulatory designation.

Regulation Reality

Gensler’s critics may enjoy making fun of him for his “deep state” agenda, or for being a criminal collaborator working with SBF, or even an insider trader. But they are missing the point.

Gensler does not play irrationally. When you accept that Gensler is a long-term planner who believes he knows and should, therefore, be allowed to limit an entire industry, his actions are perfectly logical. He is the worst rational player, one who understands the rules and knows where the gaps are. He has used them to get himself in a strong position at the table.

The lawmakers should be concerned that Gensler has created a “fourth” branch by introducing . This bill is for crypto regulation . Gensler bypasses the normal law-making processes and standards, such as the Administrative Procedures Act. It is having a huge impact, whether it’s legal or not.

Gensler’s actions have caused a flight of venture capital, entrepreneurs and companies from the United States. The U.S. economy will be hit with billions of dollar losses. There will be players who are hyper-rational until lawmakers decide on which agency should supervise the crypto sector. Only time will reveal what motivations are driving these players.

The traditional regulatory frameworks are not suitable for Web3, Blockchain and Crypto and will likely need to be revised. We must demand that the regulatory frameworks for these rapidly changing markets be updated. We must also be vocal in our criticism of new legislation.

We must speak out against the claim that all cryptocurrencies are securities. This is a simple interpretation. It’s like saying that an automobile is an airplane because both of them go from “point B to A.” There are some points to compare, but treating cryptocurrency as a security asset such as bonds or stocks in a new package makes about as much sense as calling a car with two wings.

We need a taxonomy which is comprehensive and well-structured to align with the technological advances, as well as a modernized regulator who can handle the complexities of these emerging markets. In response to the growing technologization of markets, perhaps a new fintech regulatory body should be created to better navigate the complexity of emerging digital technology when it comes to protecting financial consumers.

Gensler is not the only one to blame. The problem is rooted in a failure to acknowledge the transformative power of blockchain technology. The failure to reach consensus and adopt legal frameworks which could have fostered an industry that was vibrant (and prevented many mistakes) will be remembered as a monumental abnegation.

Opinion

It’s encouraging to see that House Financial Services Chairman Patrick McHenry, Agriculture Committee Chair Glenn Thomspon, and Senators Cynthia Lummis and Kristen Gillibrand are now introducing crypto regulation legislation.

Crypto has existed for almost 15 years. Even Europe introduced the MiCA regulation only in 2020. Gensler wants to make the summer of 2018 a memorable one for crypto firms. However, this is only possible because elected representatives have failed to acknowledge crypto’s importance over the past few years.