I spoke with Gary Gensler earlier this month about his view of the role that the U.S. Securities and Exchange Commission plays in the world of digital assets. Gensler was recognized by CoinDesk, as , one the most influential individuals, in the crypto industry in the last year.

State of Crypto is a CoinDesk Newsletter that examines the intersection of crypto and government. To sign up for future issues, click here

The Narrative

Crypto industry has some bad actors, or inept ones. This is a fact that can’t be disputed after the last year. As part of the reporting I did for this year’s series on Most Influential figures, I spoke with SEC chair Gary Gensler in early October.

Why it matters

SEC is the main regulator for the U.S. cryptocurrency industry. This is because, while many crypto companies are looking for state money-transmitter licenses, or to comply with antimoney-laundering rules, a large part of the trading in the industry falls under the SEC (or not depending on whom you ask).

Breaking it Down

Crypto’s entrepreneurs “generally” built their business models around non-compliance with law, the SEC head said.

CoinDesk named Gensler as one of crypto’s most influential figures until 2023. His agency has been suing crypto exchanges such as Coinbase, Binance, and Kraken in the last year. It’s also reviewing new applications for spot bitcoin ETFs and laying out a path (yet to be tested) that companies can use to list and trade their digital assets.

Gensler says that he is focusing on a field where fraud is rampant and some companies do not protect their clients against wash trading. He has repeated this view many times and cited the recent bankruptcies as an example.

Gensler, who has a “deep respect” for the investing public, told CoinDesk that he believes crypto investors do not receive adequate disclosures from various projects for which they might be purchasing tokens.

He said that there are “far too much fraud and bankruptcy” in the world.

Gary Gensler, the Crypto Lightning Rod who runs the SEC

Gensler’s concerns within the crypto-remit include companies mixing customer funds (an issue that has been raised in the SEC complaints this year against crypto companies) and trading with their own customers.

When asked how he would evaluate one rule, he replied that he didn’t want to prejudge it.

He referred to entrepreneurs in this sector several times.

These entrepreneurs have followers on Reddit and Medium. He said that it is also available 24 hours a days, 7 days a weeks.

Gensler questioned also the real value proposition for most tokens that he views as crypto securities.

He said: “If there is a product or service, then we can understand it.” What’s the value proposition for a decentralized token?

He said that many of these projects were just “speculative investments contracts.” He said that even bitcoin, widely regarded as a commodity is speculative.

Gensler warned that investors should be cautious, careful and ready to lose their entire assets. If you find a website or read about the entrepreneur in CoinDesk you are likely betting on them.

As has become a tradition in these parts, CoinDesk’s Regulation Team will be sharing what they are expecting or looking out for next year. The Regulation Team at CoinDesk wants to hear what our readers are expecting or watching for in 2024. If you’d like to share your thoughts with us, please send me an email.

  • This week, there are no notable hearings or events.

  • Nitish pahwa, a Slate reporter, combed through the court exhibits of Sam Bankman-Fried’s trial in order to determine how exactly the defendant was involved in “one of the most expensive campaigns” during the midterm elections in 2022.
  • Leo Schwartz, Fortune, reports that the office of New York Attorney-General Letitia Jim is using the suit against Gemini Digital Currency Group as a way to push for state legislation which would give it more oversight over the crypto sector, in conflict with New York Department of Financial Services.
  • Forbes reports that Bhutan is building a Megacity to stimulate economic development.

You can reach me via Twitter at @nikhileshde.

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Next week, we’ll see you!

Stephen Alpher edited the book.