After SEC Chairman Gary Gensler’s House Testimony, Why the Politics of Crypto Feels Different This Time

Last week’s appearance by Securities and Exchange Commission Chairman Gary Gensler before the House Financial Services Committee was his first in more than a year, and his first since the current Congress took over. The political shift in the House of Representatives to Republican control was quickly apparent as the tone was markedly hostile. The agency’s approach to digital assets was a key point of contention.

As with most congressional hearings, the event was largely about making political points and standing for the cameras. But it felt significant in that it revealed the extent of Republican dissatisfaction with Gensler’s administration, hinted at several points likely to become campaign platforms, and publicly undermined the SEC chairman’s credibility. That, in turn, may lead to some changes in the agency’s approach.

Normally, the public doesn’t care much about financial regulation. But the rhetoric witnessed last week indicates that politicians may begin to ensure that they do. It’s no longer just about financial disclosures and settlement rules: It’s quickly becoming about individual freedom and American pride.

Noelle Acheson is the former head of research at CoinDesk and Genesis Trading. This article is an excerpt from her Crypto is macro now newsletter, which focuses on the overlap between the changing crypto and macro landscape. These opinions are hers and nothing she writes should be taken as investment advice.

To be fair, the hearing was not just about perceived SEC errors and omissions. Some committee members praised Gensler for his bold approach to securities clearing reform and for “standing up to crypto-billionaires” (but did he?). And many of the Republican criticisms were not about the agency’s crypto approach, but about its shift to policing the environmental impact of publicly traded companies and other initiatives that would increase the compliance burden on smaller businesses.

However, the political nature of the issues was quite clear, with Republicans against and Democrats supporting the current SEC leadership. Davidson’s bill proposing the firing of Gensler is unlikely to move forward, but it loudly trumpets that the fight is intensifying. It’s a strange battle to pick, given the wide range of hot-button issues likely to dominate the fast-approaching 2024 presidential campaign. In any political contest, the opposition finds a weakness and seeks to escalate it into the public consciousness to score points and change the perception of the incumbents. That digital assets are a key figure in the current positioning is a strong message for Republicans to send.

Moreover, they are not enough. This is not just about financial oversight or administrative inefficiency. Nor is it just about how the capital markets work. Most voters don’t care that much. Some of the statements made it clear that this was about much bigger issues.

One is patriotism. Emmer wasn’t the only one to remind Gensler that his actions encourage American businesses to change jurisdictions, but he went so far as to accuse the SEC chief of “pushing American firms into the hands of the CCP,” referring to the Chinese Communist Party. Some hot buttons get pushed there, especially when Gensler didn’t have a memorable rebuttal to any of the claims.

Another is individual freedom. Emmer and others addressed the politicization of capital formation, but the microphone drop belongs to Davidson with the following quote which we will probably hear again:

“You can’t just exclude retail investors from markets and claim it’s for their own good.”

There is still quite a while between now and the US election in November 2024, and a lot can happen in the meantime. It’s unclear to what extent the current administration will dig in and support Gensler in his digital asset approach. A recent report on the crypto ecosystem by the White House Council of Economic Advisers was not exactly encouraging, and President Joe Biden’s team may be reluctant to hand Republicans what might look like a victory. Or it could be that Gensler’s bosses decide this isn’t a hill to die on, especially as the noise from high-profile suits involving the SEC grows louder and especially if the regulator starts losing.

Regardless, digital assets are likely to increasingly form part of the political discourse. This will expand awareness as observers pick sides, either sticking to party lines or perhaps switching sides as the ideological divide widens.

A bigger takeaway, however, is that the digital asset ecosystem is moving from market niche to political platform. Last week, crypto entrepreneur Ryan Selkis announced the launch of a $100 million multi-entity pro-crypto political campaign, and the industry has many influential protagonists who will either join or form similar initiatives.

Uncertainty is never comfortable, but we can take a moment to appreciate the attention, even if it’s not the kind of attention the industry was hoping for. You know what they say: The only thing worse than people saying bad things about you is not talking about you at all. While I’m not sure I believe that, it does highlight the importance of where the ecosystem is on this journey.

To see it taking up so much of politicians’ time, regardless of their stance, is a sign that the industry has a seat at an ever-larger table. Policy changes, and regulators come and go. Meanwhile, crypto building continues.