Why the New SEC Chairman Scares Crypto Investors So Much ?

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 7/3/21

Who's Afraid of Gary Gensler?

Bitcoin's (BTC-USD) price took a dip yesterday as investors recoiled from the mere suggestion of tighter regulations on the cryptocurrency space. The price dip occurred after the newly appointed US Securities and Exchange Commission Chairman, Gary Gensler, expressed the need for more regulation in the cryptocurrency market. 

Since his job is to protect the investor, Gensler's comments should not have surprised anyone. He would target the most speculative investing space today. However, this statement of the obvious sent Bitcoin down 3.8% this morning, nullifying the weekend rally. Ethereum (ETH-USD), Dogecoin (DOGE-USD), and XRP (XRP-USD) had similar price drops.

What's the Big Deal?

Why would many crypto-investors view Gary Gensler as a boogeyman? The answer centers around the core purpose of the cryptocurrency founders: to create a decentralized currency system free of regulatory constraints.  In this context, the SEC represents the cops who come to your house to break up a really rocking pool party. 

Cryptocurrency exchanges have evolved to the point where institutional investors have joined the party. This growing acceptance by big commerce can appear like a double-edged sword — one side can be a catalyst for change, and the other side can cause harm to investors. So, the inevitability of regulator controls is here. The crackdown is already happening around the world. Crypto exchanges such as Binance and Defi have started to comply with new limits on leverage and withdrawals. 

Why Gary's Not So Scary

If crypto investors and exchanges had to choose the top Bitcoin cop, Gary Gensler would be an excellent choice because he is a cryptocurrency expert. In fact, he once taught a class on blockchain technology at the Massachusetts Institute of Technology (MIT). In a recent Bloomberg article, he revealed a method for approving an exchange-traded fund that tracks Bitcoin futures. A crypto ETF would provide a major inroad for cryptocurrency to go mainstream, and Gensler believes it would provide sufficient protection for investors. Since the possibility of Bitcoin ETFs has historically faced SEC resistance, this type of overture from the new SEC chairman should signal to investors that future regulations may be more nuanced than traditional restrictions.  

The Eventual Crypto Outcome

From my decades of following the ebbs and flows of the market, I've seen investors almost always recoil at the slightest sign of negativity before considering all the other factors. We know that cryptocurrency is as much a disruptor to commerce as the internet was to business and society. Still, the thought of governments putting momentum-killing constraints on crypto can cause anxiety. However, like the internet, all parties involved in this space have a vested interest in allowing cryptocurrency to reach its potential. It has the potential to function with emerging technologies like no other medium of exchange. 

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