[TL;DR]:

From the initial exploration and trial to the gradual standardization, the SEC's encryption regulatory framework is becoming increasingly clear.

The regulatory actions led by Gary Gensler at the SEC have caused market volatility and investor concerns in the short term, but in the long run, it will also contribute to the standardization and mainstreaming process of the encryption industry.

Gensler's direct intervention and high-pressure regulatory strategy have led to a more negative than positive evaluation in the encryption market.

Introduction

In recent years, the Securities and Exchange Commission (SEC) in the field of cryptocurrency has been continuously strengthening its regulatory efforts. As the regulatory 'godfather' in this field, SEC Chairman Gary Gensler has repeatedly made speeches and statements on regulatory issues in the cryptocurrency market, seeking to ensure market fairness and transparency by strengthening disclosure rules and imposing fines and lawsuits. However, with the increasingly complex regulatory environment and the constant changes in the market, especially with the Trump administration declaring that they would 'fire him' once he assumes presidency, Gensler's regulatory policies are also facing more and more disputes and challenges.

Enforcement intensity is increasing year by year, Gensler's iron-fisted regulation of the crypto market

Since 2020, the United States Securities and Exchange Commission (SEC) has taken a series of major actions in the regulation of cryptocurrencies, which have not only profoundly affected the domestic market in the United States but also had a widespread and far-reaching impact on the global cryptocurrency industry.

In 2020, the SEC established the basic framework for the regulation of Cryptocurrency. At the beginning of the year, the SEC issued guidance on how to determine whether a digital asset is a security, providing the industry with clear Compliance standards. In December of the same year, the SEC filed a lawsuit against Ripple Labs, accusing it of illegally selling unregistered securities XRP, which quickly became one of the most prominent legal disputes in the encryption industry, triggering widespread follow-up on the SEC's regulatory efforts both inside and outside the industry.

In 2021, the SEC's regulatory efforts have been further strengthened. Although many companies have attempted to list BTC ETFs in the United States, most applications have been rejected. However, the approval of the Grayscale Bitcoin Trust (GBTC) indirectly demonstrates the SEC's openness to Cryptocurrency products. At the same time, the SEC has increased its investigation and enforcement efforts on encryption projects, conducting multiple investigations into projects suspected of violating securities laws and successfully prosecuting several key enterprises, demonstrating its determination to strengthen market supervision.

In 2022, the regulatory scope of the SEC further expands. The SEC begins to shift its focus to Decentralized Finance (DeFi) platforms, warning that related projects may violate securities regulations, increasing Compliance pressure on the DeFi ecosystem. At the same time, the SEC has strengthened its scrutiny of Stable Coin issuance and centralized Cryptocurrency trading platforms, particularly regarding the transparency and reserve issues behind major Stable Coins like USDT and USDC. In addition, after the collapse of FTX due to management chaos and involvement in criminal activities, the SEC has intensified its regulatory efforts in the encryption industry, considering it as an industry full of "scammers, fraudsters, and fraudsters", and has taken stricter regulatory measures.

By 2023, the SEC significantly strengthened its regulatory efforts. At the beginning of the new year, the SEC filed charges against the encryption lending company Genesis and the encryption asset exchange Gemini, kicking off the annual regulatory battle. Subsequently, the SEC also charged Nexo, an encryption lending company, alleging that its loan products were classified as unregistered securities, and reached a settlement with them, with Nexo paying a huge fine. In addition, the SEC has filed lawsuits or issued warnings against several well-known encryption companies, accusing them of various violations. Some companies even chose to relocate, close their US operations, or seek settlements to avoid further legal disputes.

As for this year, the most well-known event is that the SEC finally approved the Spot ETFs for BTC and Ethereum, which greatly promoted the price discovery of BTC this year. In addition, the SEC released a preliminary regulatory framework specifically for Decentralized Finance (DeFi) and Non-fungible Token (NFT) in the mid-year of this year, and recently expanded the existing registration system to all platforms involved in cryptocurrency trading, mandating that cryptocurrency exchanges and wallet service providers register as formal securities exchanges or broker-dealers, strengthening the control over the circulation of cryptocurrencies.

Gensler's Strong Regulation: From Potential Ally to Open Enemy

Gary Gensler has been serving as the chairman of the U.S. Securities and Exchange Commission (SEC) since April 2021, and his career spans across various important sectors including Goldman Sachs, the U.S. Department of the Treasury, the Commodity Futures Trading Commission (CFTC), and the Massachusetts Institute of Technology (MIT).

He once taught the course "Blockchain and Currency" at MIT, held a positive attitude towards blockchain technology, and encouraged students to participate in the industry, so he was once regarded as a friend of the encryption industry.

However, when Gensler was nominated by Biden as the SEC chairman, his tough regulatory style caused a huge controversy in the encryption industry. He frequently made serious regulatory remarks, advocating that most tokens in the encryption market are securities and should be regulated by securities laws, and he has been leading cases against many well-known encryption companies, including Ripple, Coinbase, Kraken, FTX, Binance, etc.

Despite the controversy surrounding Gensler's regulatory actions in the encryption industry, and even being seen by some as the "public enemy of the encryption world", objectively speaking, his actions have also promoted the integration of the encryption industry into mainstream finance.

During his tenure, the SEC successively approved the futures ETFs of BTC and Ethereum, as well as the listing of Spot ETFs. The approval of these ETFs provided a formal identity for the encryption industry, enabling it to make a milestone appearance in the mainstream world, which is significant for the further growth of the encryption industry.

At the same time, Gensler's regulatory actions have also prompted the encryption industry to pay more attention to Compliance. Some companies are beginning to seek cooperation with regulatory agencies to ensure the legality of their business, and strengthen internal Compliance management to avoid potential legal disputes. Of course, this increases the Compliance costs of enterprises, and excessive enforcement actions also limit industry innovation and progress.

Overall, Gary Gensler's regulatory actions have caused market turbulence and investor concerns in the short term, but in the long term, they will also contribute to the standardization and mainstreaming of the encryption industry.

What will happen to SEC encryption regulation after Trump takes office?

It's not difficult to see that Gensler's direct intervention and high-pressure regulatory strategy have led to a more negative than positive evaluation of it in the crypto market. Gensler recently stated at the annual meeting of the Bar Association, "I am honored to be able to work with them, serve the people, and ensure that our Capital Market continues to maintain its global best level." However, these favorable remarks have not been able to quell industry dissatisfaction with its regulatory strategy.

With Trump's upcoming presidency next year, his remarks at the BTC conference that he will fire Gary Gensler on his first day in office have once again been warmly received by the market. Trump's commitment undoubtedly intensifies Gensler's difficult situation of leaving the SEC with dignity. However, dismissing the SEC chairman is not an easy task. Trump must provide legitimate reasons for dismissal and go through legal review and administrative transition, a process that could take more than a year.

It is worth noting that Gary Gensler hinted in a statement last week that he might leave the SEC, while Ripple (XRP), which has been battling with the SEC for many years, quickly pumped 20% on this Favourable Information, hitting a six-month high.

According to Gensler's speech, the future SEC's encryption regulatory strategy may present the following new trends:

1. Suspend enforcement actions against registration violations: The new SEC chairman may suspend enforcement actions against cryptocurrency companies that only violate registration requirements in order to wait for a more clear regulatory framework to be established.

2. Release the latest guidance: SEC may update its guidance on when digital assets are sold as securities to reflect changes in the industry over the past five years and address issues such as asset-backed stablecoins.

3. Propose encryption rules: Considering the differences between encryption assets and traditional securities, the SEC may propose tailored rules to more accurately regulate this emerging field.

4. Use of Exemption: The SEC may use its exemption power to provide tailored relief measures for participants in the crypto market to address the challenges posed by traditional securities rules.

5. Update on Special Purpose Broker-Dealer Statement: The SEC may update its guidance on special purpose broker-dealers to make it more applicable to today's encryption industry and extend the relevant deadlines.

In addition, with the Republican Party controlling the Senate and possibly the House of Representatives, Congress also has the opportunity to pass Cryptocurrency legislation. However, even so, the SEC will still play an important role in Cryptocurrency regulation. The recently passed "21st Century Financial Innovation and Technology Act" and "Lummis-Gillibrand Responsible Financial Innovation Act", supported by both parties, have opened up space for the SEC in the regulation of digital assets.

Overall, the greater likelihood of Gary Gensler's departure and the regulatory vacuum he leaves behind may bring new positive developments to SEC's encryption regulation. In the future, SEC should ensure that industry perspectives are fully considered, promote technological innovation and market standardization processes, and also need to find a balance between protecting investors and supporting market innovation.

Author: Charle Y., Gate.io Researcher

This article only represents the author's point of view and does not constitute any trading advice.

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