For the first time ever, a majority of the most important American regulatory agencies will be headed by people who actually understand crypto.
Having leaders versed in crypto means that there will be good conversations between those in the crypto industry and the regulators who oversee them. Hopefully this will result in better regulations that allow crypto to become a fully integrated part of the existing financial institution.
Here’s who the regulators are and what their understanding of crypto is.
SEC — Gary Gensler
Out of the three agencies that we’ll cover in this article, the SEC (US Securities and Exchange Commission) is by far the most important. The following are just a few examples of how the SEC has intervened in the crypto space in the last few years.
- The SEC initiated a lawsuit against EOS, alleging that the EOS token was an unregistered security. The lawsuit was settled for $24 million.
- Even though Telegram wanted to release a token in a fully compliant and legal manner, the SEC blocked the Telegram coin offering.
- The SEC has hit Ripple with a multi-billion dollar lawsuit which alleges that XRP is an unregistered security. This case is shaping up to be a massive legal battle that could go on for years.
The SEC is also the agency that’s always turning down the Bitcoin ETF application. That’s why it’s so encouraging to see that Gary Gensler has been appointed as the new SEC chairman. You would be hard-pressed to find a public official who understands cryptocurrency and blockchain better than Gensler.
Since 2018 Gensler has been teaching a blockchain technology class at MIT. He understands what makes Bitcoin valuable, how Ethereum is different from Tezos and what an airdrop is.
Gensler’s technical knowledge is a huge plus because it will enable a sophisticated conversation to take place between the SEC and the cryptocurrency industry. Of course, just because Gensler understands crypto does not mean he will drop all the lawsuits and completely give up on regulating crypto.
However, the regulations that come out of Gensler’s SEC will likely make sense and they will be compatible with blockchain technology as it stands today. And of course…
With Gensler running things, it’s a lot more likely we’ll finally see a Bitcoin ETF get approved.
CFTC — Chris Brummer
CFTC stands for Commodity Futures Trading Commision. Unlike the SEC which has purview over all crypto assets, the CFTC controls only a small handful. That’s because the CFTC sets the rules for commodities, I.e. gold, platinum, corn, etc. So CFTC rulings only apply to cryptocurrencies that are considered commodities. That includes Bitcoin and probably Ethereum.
According to Reuters, the Biden administration is going to tap Chris Brummer to chair the CFTC. Like Gensler at the SEC, Brummer is another regulator with a deep understanding of cryptocurrencies and blockchain technology.
In fact, Brummer wrote the book: Cryptoassets: Legal, Regulatory, and Monetary Perspectives. Here is a person who is very qualified to make informed decisions regarding cryptocurrency regulation.
Hopefully one thing we see out of the CFTC is more clarity regarding Ethereum. If the CFTC were to come out and say that Ethereum is definitely a commodity, it would put an end to speculation about ETH’s regulatory status. That could make Ethereum more attractive to institutional investors both in the United States and abroad.
The Treasury — Janet Yellen
Compared to Gensler and Brummer, Yellen’s understanding of crypto is almost certainly lacking. However, it’s important to point out that Yellen’s initial comments about the cryptocurrency sector are not nearly as bearish as was initially reported.
In her Senate hearing, it seemed like Yellen was critical of crypto by alluding to its use in terrorist financing. However, in the transcript of the conversation Yellen comes across much more tolerant. Here is Yellen speaking on the crypto industry.
“I think we need to look closely at how to encourage their [cryptocurrencies] use for legitimate activities while curtailing their use for malign and illegal activities. If confirmed, I intend to work closely with the Federal Reserve Board and the other federal banking and securities regulators on how to implement an effective regulatory framework for these and other fintech innovations.”
That’s a fairly standard response, it’s about what you would expect to hear from any 74-year-old government economist.
The truth is that for now at least, Yellen has many more important things to handle than crypto. There is massive unemployment throughout America, skyrocketing government debt, inflation concerns and the mother of all bubbles in the stock market. When Yellen wakes up in the morning the first thing she thinks about isn’t Bitcoin.
That could change in the future though!
If BTC blasts past $100k the media coverage will be tremendous and it may force Yellen to take a second look. For now though, the most likely thing to come out of the treasury isn’t new crypto regulation but rather, trillions of freshly printed dollars.
If there is one thing that we’ve seen so far, Bitcoin and other cryptocurrencies tend to do very well when the printing press is running…
The Path Forward
With Gensler and Brummer, the crypto industry has been gifted a new generation of regulators who have an excellent technical understanding of blockchain technology.
Like we said, just because they understand crypto doesn’t mean that these two gentlemen are ultra-bullish on the market. Still, the odds of the SEC and CFTC promoting fair and favorable regulation are much higher when thoughtful leaders are at the helm.