Gary Gensler lost the bitcoin ETF battle. Can he win his crypto war？

I don‘t think there’s any confusion about whether Gary Gensler has sought to radically reshape the crypto regulatory landscape in the United States.

Gensler, head of the Securities and Exchange Commission since mid-2021, made that agenda clear in a speech several months after his confirmation by the US Senate. At the time, he argued that “large parts of the field of crypto are sitting astride of — not operating within — regulatory frameworks that protect investors and consumers, guard against illicit activity, ensure for financial stability, and yes, protect national security.”

His agenda centered around several key points: exchange oversight, stablecoins, custody and exchange-traded products. On these fronts, Gensler argued, the American crypto space was outside the bounds of US law. His agency would seek to change that, a process that has since played out via enforcement actions, court battles, rule-change processes and appeals to Congress for more lasting legislative solutions.

Gary Gensler has pursued this agenda aggressively. His agency has launched legal salvoes at an array of crypto businesses, including majors like Binance and Coinbase. Fights against staking services, crypto lending firms and NFT projects have redrawn the regulatory operating lines in America.

Yet last weeks bitcoin ETF approvals amount to a significant setback for Gensler, and one that will have a lasting impact.

The approvals were, expectedly, lauded as a milestone by some, representing the growing connection between the mainstream finance and crypto worlds.

Genslers statement on the ETF approval characterized the outcome as “the most sustainable path forward” in light of a court loss against Grayscale Investments and a protracted decision-making process.

But Gensler‘s statement wasn’t exactly a ringing endorsement. It bore signs of an admission of defeat, complete with a multi-pronged jab at bitcoin itself — “a speculative, volatile asset thats also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing” — accompanied by not one but four footnotes.

“While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin,” Gensler went on to say.

Gensler was one of three commissioners to approve the slate of bitcoin ETFs, but it‘s possible this tack had more to do with sparing the SEC what would likely have been a legal onslaught should the agency decide to knock down the proposals. One wonders whether BlackRock or Fidelity, having thrown so much weight behind their proposals, would accept defeat given Grayscale’s earlier legal victory.

Gensler‘s statement was a tacit admission that the market winds had turned against the SEC’s conservative crypto approach. Its no accident that BlackRock chief Larry Fink called the launch “step one in the technological revolution in the financial markets.” The asset management giant seems all but poised to move aggressively, and new types of crypto ETFs, including those that hold spot ether, are being pursued.

If I were a betting man, Id say that by offering the bitcoin ETF carrot, Gensler hopes to preserve as much stick as possible for the other parts of his crypto agenda.

Because entering 2024, his plans sit in a complicated place.

Appeals for legislative solutions on stablecoins seem lost amid Congress‘ inability to perform basic governmental functions in a timely fashion. It’s possible that stablecoin rules could find their way into a legislative package in the future. But with a national election season in full swing and the widespread Republican disdain for Gensler, the outcome remains difficult to predict.

A recent move by the SEC to drop charges against Ripple CEO Brad Garlinghouse and co-founder Chris Larsen points to a potential conclusion of that case. Right now, the two sides are at an “impasse” over the production of documents regarding institutional sales of XRP. These documents will potentially inform the basis for any fines imposed by Judge Analisa Torres.

On the exchange oversight front, the SEC is left to wage a lonely war against Binance after the US Department of Justice opted for a multibillion-dollar settlement with the crypto exchange and its now-former CEO, Changpeng Zhao.

How successful that war will be is an open question, but that fight could prove to be a protracted one. The case against Ripple, for those keeping track, just passed the three-year mark. Accusations that the SEC lied in a separate crypto-related court case dont do the agency any favors.

And in case you forgot, the multi-pronged legal spat between the SEC and Coinbase remains ongoing as well.

Elsewhere, the SECs proposed custody-rule changes to account more broadly for crypto, introduced in early 2023, face opposition. Crypto-native custody firms, industry lobbyists and commissioner Hester Peirce have all called for changes to the proposal.

Gensler‘s war is being fought on multiple fronts, and he’s arguably won some victories to date. But it seems like opposition abounds in every direction now, with Gensler himself drawing particular — and at times personal — ire.

The legacy of this war — and whether Gensler can “win,” if such an end-state actually exists, may hinge on things outside of Gensler control: control of Congress and the White House, and the ability of the US government to, well, govern.

There‘s a reason Gensler has pushed Congress to act. Without such changes enshrined in US law, the regulatory preferences of the SEC today could look different. Gensler’s term ends in 2026 — the middle point of a presidential term led by Joe Biden, Donald Trump, or someone else entirely.

And while its true that the SEC under Gensler has scored a series of high-profile settlements — Kraken, Nexo, BlockFi to name a few — the lack of definitive court ruling means that those crypto cases are closing without the kind of far-reaching precedent that could further reshape the regulatory rules governing crypto within the US.

The events of the next 12 months will likely decide whether Genslers crypto agenda succeeds or falls short.