A crypto-friendly SEC Chair-elect or a Sicilian Defence?

22 Jan, 2021
A crypto-friendly SEC Chair-elect or a Sicilian Defence?

What’s the logic behind the decision to nominate a US Securities and Exchange Commission Chair who actually embraces cryptocurrencies?  Is this a signal that the new Biden Administration is ready to mainstream crypto?  Or is it more like the famous chess opening called the Sicilian Defence, which is known for its defensive posture?  Lots to ponder in the crypto universe about this one.

First, let’s take a look at the tremendous talent that President Joe Biden has selected to lead the SEC. Gary Gensler, the former chairman of the Commodity Futures Trading Commission (CFTC) for the Obama administration, appears to be bullish on crypto. He is a Professor of Practice and Global Economic Management at MIT’s prestigious Sloan School of Management and “conducts research and teaches on blockchain technology, digital currencies, financial technology, and public policy,” his MIT profile states.

Yet, his choice, among others, is being called “a victory for the Democratic Party's progressive wing, which has led the charge for more aggressive oversight of the financial industry,” CNN reports.

So, while his digital currency background is admirable, Gensler has widely been described as a tough and relentless regulator.

“I can attest that he is thoughtful and broad-minded about the future of crypto-assets and that he understands the role enlightened regulators can play in boosting innovation,” Jeff Bandman, founder and principal of Bandman Advisors and a former CFTC official, wrote in a Coindesk article. “I can also promise he will not simply be a cheerleader.”

While no one knows how many crypto wallets Gensler may have, we do know that he is a former superstar executive at the US investment firm Goldman Sachs, where he quickly rose through the ranks in his 18-years, only leaving to become an assistant of the US Secretary of Treasury in the Clinton Administration. During his Clinton years, he was an advocate for deregulation.

Gensler kept his fingers in the regulatory pie during the Bush Administration as senior advisor to US Senator Paul Sarbanes. Interestingly, he was instrumental in writing the Sarbanes-Oxley Act of 2002, which was developed in response to fiscal scandals at some of the world’s largest publicly traded organizations including Enron and WorldCom. The new law brought about strict reforms to security regulations.

Fast forward and Gensler pops up again to serve in the Obama Administration as chairman of the CFTC from 2009-2014.  Only this time, he had a new goal: “he is leading the Obama administration's campaign to start policing the Wild West of finance: the murky market for over-the-counter derivatives…” reported USA Today in 2009.

As the US Congress was considering a bill to regulate derivatives, he urged the politicians to consider stricter measures. "I like to say I'm on the side of the American public," he is quoted as saying in a letter to the lawmakers. "We need to bring comprehensive reform that covers the whole market."

He is also credited for bringing big banks in line in the aftermath of the 2008 financial crisis.

“Under his leadership, the C.F.T.C. cracked down on manipulation by big banks of Libor — the London Interbank Bank Offered Rate (LIBOR) — which is used to set interest rates on many bank loans,” the New York Times notes. “Working in tandem with the Justice Department, Mr. Gensler and the C.F.T.C. extracted big fines from banks and led to a plan to replace Libor with a new benchmark that is less subject to abuse.”

Now, if you’re keeping score, it looks like Gensler leans toward more regulation, not less.  Which could potentially impact how crypto is integrated into the financial mainstream – or not.  And if the new administration’s goal is to put some rails on the growth of cryptocurrencies it makes perfect sense that a crypto expert such as Gensler would be chosen to lead the charge.

After all, the best defense is a good offense.  Could that be the case here? Another opportunity to reign in another “Wild West” which the crypto world has often been called?   If that’s the plan, bringing in Gensler could be seen as a very defensive move on the part of the Biden Administration. Know your opponent. Start aggressively. Just like the Sicilian Defence.

“It produces the psychological and tension factors which denote the best in modern play and gives notice of a fierce fight on the very first move," noted chess grandmaster Larry Evans.

If that’s the case, let the play begin.

Joyce Pavia Hanson