August 4, 2021

A Crypto Power Grab?

A perennial topic of discussion and speculation has been the role that the SEC should play in regulating the ever-expanding world of digital assets. What to some appears to be a regulatory void that has evolved in recent years presents a fascinating case study about the intersection of innovation and regulation. One side argues that too much regulation would stifle innovation in digital assets, while the other side argues that not enough regulation will inevitably lead to fraud and abuse that erodes investor confidence in digital assets to the point that no one will want to risk their capital in the asset class going forward.

As this Bloomberg article notes, it has been a parlor game in Washington to try to divine which side of this debate SEC Chair Gary Gensler is on. Gensler is uniquely qualified to weigh in on this debate given that, in his most recent job at MIT, he studied and taught about all things crypto. The Bloomberg piece indicates that, at a speech yesterday at the Aspen Security Forum, Gensler said:

“While I’m neutral on the technology, even intrigued—I spent three years teaching it, leaning into it—I’m not neutral about investor protection. If somebody wants to speculate, that’s their choice, but we have a role as a nation to protect those investors against fraud.”

While Gensler has recently requested that Congress pass a law giving the SEC authority to oversee digital asset exchanges, he acknowledges that the SEC’s already has broad powers in this area. In support of the need for more regulation over crypto assets, Gensler drew an analogy to the automobile industry, stating that sales of automobiles did not fully take off until the government imposed rules on driving, like speed limits and traffic lights. While we don’t know exactly how and when digital asset regulations will evolve during Gensler’s tenure, it is now clear that some rules of the road can be expected.

Dave Lynn