Not quite a year ago, I wrote an article trying to honestly assess a reality many in the crypto space would rather ignore. That article, “What If Gary Gensler Is Right” was a somewhat academic exercise trying to acknowledge the idea that some cryptocurrencies just might be securities and that the SEC’s regulatory crackdown on the space might have some justification. Much has changed, and much has occurred since that article originally appeared, but one thing has become clear: Gary Gensler should not be given the benefit of the doubt.
So many events have occurred over the past 11 months pertaining to the SEC and crypto that to encapsulate them all here would be nearly impossible. In fact a great article by Sam Lyman of Forbes comes rather close, so no need for me to go that route. Of note, Lyman proposes that Gensler, a seasoned DC operator, is engaged in something called “anchoring,” a practice by which politicians and policy makers first propose legislation or regulations that are so far and away from reality, that it looks like concessions are being made when things get dialed back. This pulling back towards the center then looks like compromise, DC players come to an agreement, and then the next fight gets underway. I think Lyman has a point here, and he may be correct.
As an investor, Lyman’s point about “anchoring” is quite interesting, because when Gensler comes out saying that stablecoins are securities, he is clearly going so far off script, almost attempting to blow the entire space up, that he is clearly not engaged in good faith efforts at effective regulation. His stablecoin stance, claiming that even they are securities simply falls apart upon even a cursory glance: stablecoins clearly don’t come with an “expectation of profit,” as the very idea of holding a stablecoin is to always remain pegged to the dollar. Yes, there are arbitrage opportunities based on different factors, but again, no one is holding stablecoins in the hope of making a profit. Gensler’s assertion is absurd from the start. So, the question then becomes: is he “anchoring” as proposed by Lyman, or is it something else?
As an investor, one has to look at the macro environment and attempt to find coherence in chaos, oftentimes having to parse out a trend in the midst of a timeframe that doesn’t quite make sense. As an investor, I don’t see Gary Gensler as engaged in an anchoring strategy nearly as much as I see him engaged in a tactical delaying strategy. Sure, he might be carving out his own legacy by attempting to craft policy around the crypto space, but crypto is currently a trillion dollar market. The gold market is 10 times as big. So why is he spending all this effort, all this political capital on such a small part of the overall market? Because crypto is a freight train, and Gensler has been charged with slowing it down.
In many respects, crypto adoption mimics internet adoption of the 1990’s, and some estimates have the number of crypto users growing by 60% a year. While linking an article to a website you have never heard of is hardly definitive proof of my assertion, take a field trip to your local bank, and notice how few people are there. The trend is obvious. Gary Gensler can only delay the inevitable.