Gary Gensler Refuses to Write Crypto Rules

SEC’s stance puts investor interests at risk and endangers innovation

Ric Edelman: It's Tuesday, March 19th. On today's show, crypto's going gaga and the SEC is still screwing things up. Gary Gensler is the chair of the US Securities and Exchange Commission. He's made it very clear that he hates crypto. He's also said there's no need for any new rules to govern or regulate crypto, even though the technology's brand new. It was invented in 2009. And yet all the rules that the SEC operates under were written in the 1930s and 1940s. Gary Gensler refuses to write new rules, despite the fact that he's been hauled into Congress a dozen times to hear House and Senate members demand that he write new regs. The crypto community has been pleading for regulations, as has the financial services industry as well as investors all across the country. But instead of writing new rules that can clarify what we're allowed to do and how we're allowed to go about doing it, the SEC says nothing. Until after you do it, that is. And then they swoop in with lawsuits accusing you of violations that you didn't know you were committing, and hitting you with fines of tens of millions, even hundreds of millions of dollars. Dozens of crypto companies have been forced out of business this way, and who knows how many more have failed to even start? Because entrepreneurs are afraid to enter a field where the SEC has planted landmines.  

Instead of apologizing for this, the SEC is bragging about it. They issued a report announcing a, quote, “highly productive year” in 2023 because they took 150 enforcement actions against crypto companies. At an industry conference a couple of weeks ago, Gary Gensler said, quote, “I'm really proud of that.” It's gotten so bad that every former SEC commissioner has criticized Gary Gensler for the way he's handling crypto, and even two of the current SEC commissioners have recently published a scathing dissension over how the SEC is behaving. And now the GAO has criticized the SEC as well. The Government Accountability Office says that when the SEC wrote a new rule, it didn't give Congress a chance to review it, even though the SEC is required by law to do so. The issue is the SEC's Staff Accounting Bulletin number 121, and it's highly controversial. It's not a new rule, mind you. The SEC doesn't issue rules for crypto, remember. Instead, this is merely a guidance, which means it doesn't have the force of law. And the crypto industry says this should be a formal rule. Can you name any other industry where the industry is begging for formal laws that restrict how a business is done and the government refuses to do it? Yeah, go find a banker or an oil driller asking Washington for more regulation. Only crypto does that happen. The GAO says the SEC should be creating actual rules, not merely issuing voluntary guidance, and the guidance itself is not helpful. Even SEC Commissioner Hester Peirce called the language, quote, “a scattershot and inefficient approach to crypto.” Maybe one reason the SEC is so consistently blowing it with crypto, failing to write the rules that the crypto industry needs, is because the SEC simply lacks the skills and expertise needed to do so. The SEC is struggling to hire crypto experts, and a big reason is because the SEC says that if you're going to be employed by the SEC, you are prohibited from owning any digital assets. There are a lot of people who would love to work for the SEC, and they'd love to help the agency craft the rules that the crypto industry needs to protect investors. But these people own Bitcoin and Ethereum and other digital assets. They'd have to divest themselves of their holdings because of these conflict-of-interest rules. They're simply not willing to do that. And I don't think we can blame them. But this blanket prohibition is not necessary. The SEC already deals with this regarding the stock market; you really think nobody at the SEC owns any stocks? They could design similar rules for staff ownership of crypto just as easily. And so amidst all of this, it's no surprise that the chair of the Commodity Futures Trading Commission, Rostin Behnam, is complaining that, quote, “nothing has changed at the SEC.” And as a result, he says there are insufficient investor protections when it comes to crypto. Since the SEC won't act, Behnam is asking Congress to give the CFTC the authority to act. Almost half of the charges that the CFTC brought last year involved crypto 47 out of 96, and on everything from illegal digital asset derivatives trading to improper decentralized autonomous organizations. 

And by the way, the CFTC isn't the only agency that wants the government to move forward. The fed vice chair, Michael Barr, he wants rules for stablecoins. That's a $140 billion market. It's among the fastest growing categories for crypto. Congress has gotten so frustrated over Gary Gensler that last fall, the House inserted an amendment into the budget bill ordering the SEC to stop its enforcement actions against the crypto industry. Meanwhile, other countries are moving forward with their crypto laws and regs, and they're drawing US companies there that are in the crypto space, where the clarity and cooperation between government and industry is much more conducive for operating a business.  

South Korea is doing a pilot for a central bank digital currency operated jointly by the Bank of Korea. That's their version of the Fed. And the Financial Services Commission. That's their version of the SEC. But you don't see those kinds of actions here in the US. South Korea has also written a new crypto law that gives the crypto community the clarity it needs to operate. And this is really clever – on one hand, the South Korean government says, here's how you can operate. And if you operate this way, you're fine. But at the same time, the law says if you violate these laws, you'll not only face fines, you face life in prison. I think that'll get everybody to act properly. Turkey is also moving forward with new crypto regulations. It strikes a balance as well. It protects consumers while fostering innovation. The two are not mutually exclusive. And all this is happening as the world is getting very excited about Bitcoin and crypto. How excited?  

Despite all the bumbling and fumbling by the SEC over crypto, Bitcoin's price rose 160% last year, and so far this year it's up another 60 or so percent, mostly because a court last year ordered the SEC to grant approval of spot Bitcoin ETFs. Gary Gensler had rejected dozens of applications for a Bitcoin ETF. And finally, one of those sponsors took him and the SEC to court. And the judges ruled that the SEC had acted arbitrarily and capriciously in denying the approvals, and the court ordered the SEC to approve them. And so the SEC did so on January 10th of this year. And as a result of all this, the price of Bitcoin has skyrocketed. Without the ETF's, financial advisors haven't been able to recommend Bitcoin to clients. And now that these ETFs are here, advisors can finally engage and they are doing so in droves. I'm expecting hundreds of billions of dollars to flow into these ETFs over the next few years. We've already seen $20 billion go into these funds in just two months. I'm not sure you understand how big a deal this is. The last record was set by QQQ. The Q’s are now 25 years old. QQQ as an ETF generated $5 billion in assets after two years. These new ten Bitcoin ETFs, they generated $20 billion in assets in just two months. And it's just getting started.  

Most financial firms haven't yet begun to offer these ETFs. Merrill Lynch, UBS, Wells Fargo, Morgan Stanley, JP Morgan – they are all still in the due diligence phase. It'll be a few more months before they launch. Once they do. We're talking a couple of hundred thousand financial advisors. They'll be able to recommend these ETFs to their clients. We're talking advisors who collectively manage $30 trillion in assets. And they're going to allocate, on average 2.5% of assets into these ETFs. We're talking massive asset flows, creating a huge unprecedented demand for an asset that has a limited supply. Think about this, already based on the current flows into these ETFs from independent advisors and retail investors, these ETFs are buying 10,000 Bitcoins every day. But the Bitcoin miners are only producing 900 new Bitcoins every day. The demand is ten times more than the supply. And starting in late April, the new supply gets cut to 450 new Bitcoins a day, making it a 20x difference between the supply of new Bitcoins and the current demand. So if you're wondering why Bitcoin's price has been rising so much, now you know why. And you ain't seen nothing yet. It's going to be downright astonishing. I think I've been wrong on both of my predictions. I've been saying for months that we're going to see $150 billion inflows by the end of 2025, and that Bitcoin's price by then will be $150,000. I now think I'm very wrong on both of those predictions. 

I now think the flows will be much faster and the price will be much higher. What's happening right now is so profound and so persuasive that even Jamie Dimon has finally started to change his tune. In December, a month before the Bitcoin ETFs got approved by the SEC, he told Senator Elizabeth Warren in a hearing on Capitol Hill that if he was the government, he would shut down crypto. He would ban it. Jamie has said for years that he thinks the only thing Bitcoin is used for is money laundering and sex trafficking. And I've been telling you that Jamie would soon stop saying such stupid things. Now he is. At Davos earlier this year, he said he's going to stop talking about Bitcoin, a sign that he finally realizes he can't keep saying incredibly stupid comments that prove he doesn't know what he's talking about. And now, just this past week, Jamie told CNBC that he will defend your right to buy Bitcoin. Oh sure, he still says he personally doesn't like it, but now he also says you deserve the right to own it if you want to. What happened to his crack four months ago that if he was the government, he'd ban it? Look at how fast Jamie has changed his tune. That's because even Jamie Dimon can't deny that investor demand for digital assets is huge, and he's increasingly looking silly being a naysayer. His firm has actually been heavily engaged in crypto for years, despite Jamie's cockamamie comments. And so he's slowly shifting his narrative from let's ban it, to I don't want to talk about it, to I'll defend your right to buy it. 

I guarantee the next step is for Jamie to outright endorse it and recommend it. We saw the same thing happen with BlackRock's Larry Fink. In 2017, Larry said the only thing Bitcoin was good for was illicit activity. A year ago, though, Larry changed his tune, saying that Bitcoin is going to revolutionize global finance. He had Blackrock create one of the new Bitcoin ETFs and it's now amassed over $10 billion in assets so far. Larry knew he was out of step with his clients and he made the shift the right business call. Jamie Dimon is doing it too. A little bit slower, a little bit late to the party, but he's making the shift nonetheless.  

Let me tell you something – I've seen lots of crypto haters become crypto supporters, but I've never seen a crypto supporter become a crypto hater. And I've seen lots of Wall Street professionals go into the crypto business. But I've never seen anybody in the crypto business go back to Wall Street. And I've seen a lot of former regulators and members of Congress join crypto companies. All that says a lot. Gary Gensler still hates crypto. He's on an island, and there aren't very many people on that island with him anymore. And pretty soon he's going to be all alone. Eventually, he'll be gone. His term is up in 2026.  

On tomorrow's show: how millennials are handling their money. 

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