Last night the Wall Street Journal reported that Gary Gensler is expected to become the next Chairman of the Securities and Exchange Commission (SEC). The news is not yet official. Currently, an MIT professor who gives lessons on blockchain and money, Gensler previously worked at Goldman Sachs and has regulatory experience as former Chairman of the Commodity Futures Trading Commission (CFTC) until 2014.
Gensler is a proponent of blockchain, but previous congressional testimony indicates he may not be a soft touch regarding cryptocurrencies. However, he is very likely to push for regulatory clarity for digital assets. At the CFTC, Gensler quickly introduced post-crisis rules for the derivatives sector, which surprised some, given his Goldman background.
At MIT, Gensler is also an advisor to the Digital Currency Initiative, and MIT is also working with the Federal Reserve Bank of Boston to build and test a hypothetical central bank digital currency (CBDC).
Testimony on cryptocurrency
In 2018 congressional testimony, Gensler opened with the statement, “Blockchain technology has real potential to transform the world of finance. Though there are many technical and commercial challenges yet to overcome, I’m an optimist and want to see this new technology succeed. It could lower costs, risks and economic rents in the financial system.”
During the same talk, he noted that the CFTC can’t make rules for Bitcoin and Ether (as opposed to derivatives) because they are “cash commodities” and suggested legislators consider allowing the CFTC or another regulator to write such rules.
Gensler also stated: “Clear rules of the road also would allow firms – both incumbents and start-ups – to more fully explore investing in blockchain technology or crypto assets.”
He said clarity would create a more level playing field for incumbents, which are at a disadvantage as they cannot afford to take reputational and regulatory risks.
Views on Libra / Diem
In 2019 Gensler participated in one of the many hearings about Facebook’s Libra (now Diem). In his view, as a minimum Diem is a pooled investment vehicle that should be regulated by the SEC. He also considered that the Libra Reserve may be a bank and should be prohibited from making loans.
“In the 19th century, private actors were issuing private forms of money and using those funds to invest in loans and other assets. These private actors were called banks and the money was called banknotes,” he said.
At the time of Gensler’s testimony, Libra was planning to focus on its own coin. Gensler suggested that the multicurrency risk might be unpalatable. Instead, Libra should consider offering a suite of single currency stablecoins. That’s something that Libra / Diem has since announced. His statement continued with a thorough analysis of all aspects of Libra.
There’s a good summary of Gensler’s positions in his interview with Bloomberg.
Gensler has a deep grasp of blockchain and cryptocurrency issues. Combined with his background and bias towards action, regulatory clarity is likely to improve significantly under his SEC leadership.
On the same day, rumors also circulated that Brian Brooks, acting Comptroller of the Currency, is expected to step down soon from the OCC. He’s been very active in providing regulatory clarity, although some have had concerns about his crypto-friendly stance.
