Gary Gensler and Congress have both failed the U.S. crypto industry.

We are entering the summer of the U.S. Securities and Exchange Commission (SEC). The agency’s latest actions against the world’s foremost exchanges , Coinbase and Binance, have the crypto sector reeling.

Major players are making moves – quickly. Crypto.com announced it will wind down its U.S. institutional business due to “limited demand.” Robinhood testified last week in a House crypto hearing about the complete lack of help it received from the SEC in registering as a digital assets broker.

Dr. Paolo Tasca is a professor and economist at University College London, the founder of the DLT Science Foundation (DSF) and member of the blockchain technical committee at the International Organization for Standardization (ISO). He advises several companies, including Hedera Hashgraph and INATBA.

This isn’t a full accounting of the SEC’s recent activities or crypto’s response – there is far more to explore. But the ringleader of the chaos is Gary Gensler, the current chairperson of the U.S. Securities and Exchange Commission.

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• Prague is brewing.
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Robinhood, eToro and other major brokers have began delisting tokens from some of the most prominent blockchain projects in the space. Many of those projects happen to use proof-of-stake (PoS) algorithms, which guarantee high levels of network security, but have been called into question by SEC Chair Gary Gensler.

Suffice it to say, scrutiny is increasing.

The crypto sector has reason to wonder why Gensler is taking a hard stance on the cryptocurrency industry, especially compared to his predecessors. It is true, there are several problems in the crypto space. The Federal Trade Commission (FTC) reported victims lost more than $1 billion in cryptocurrency scams between January 2021 and March 2022. However, this statistic is nine times less than the losses incurred from security frauds in 2022 , overall.

Gensler’s focus leads me to believe he’s following the “nine over one” rule – i.e., spending 90% of his time policing the crypto industry, a sector that accounts for just 10% of scams across the financial industry.

What kind of evidence and information is Gensler using to make his decisions? What can we expect from future SEC actions? Why has he changed his mind so much ? And why is it that a government official is employing social media in a manner akin to a social media influencer, predominantly sharing content related to crypto while displaying personal satisfaction and emotional investment?

I was shocked when I recently rewatched an interview between Gensler and blockchain Managing Editor for Global Policy and Regulation Nikilesh De. He abruptly interrupted De, emphatically claiming three times in a row that all cryptocurrencies are securities. Shouldn’t any government official, particularly the SEC chair, maintain impartiality, emotional detachment and fairness in carrying out their duties?

As speculation continues to rise, conspiracy theories about the SEC’s true motives have also emerged on Twitter, Reddit and beyond. There are questions about Gensler’s relationship with Sam Bankman-Fried. And reports that he was turned down for advisory roles at Binance. He doesn’t have to be collaborating with SBF or operating out of spite to question the soundness of Gensler’s thinking.

See also: Gary Gensler’s Evolving Position on Crypto – in Quotes

The latest brouhaha (that is not really a brouhaha) is that the SEC is clearing the way for Prometheum and a handful of other firms, founded by regulatory insiders, to be the primary dealer for digital assets. Prometheum has a license to operate as an alternative trading system (ATS) that plans to list “digital asset securities” – but it’s unlikely any cryptocurrencies will ever fit that regulatory designation.

Regulatory reality

Accusations that Gensler is a “deep state” agent hellbent on banning crypto, a criminal collaborator with SBF or an insider trading favors are fun to entertain, but they miss the point.

Gensler is not an irrational player. His actions make complete sense when you come to terms with the fact that he’s a long-term thinker who thinks he understands and, therefore, should be allowed to restrict an entire sector. He’s the worst kind of rational player: one who knows the rules (and where there are gaps). He’s used them to navigate himself into a powerful position on the board.

Lawmakers should show concern that Gensler is practically creating his own “fourth” branch of government by introducing a new bill for crypto regulation , bypassing the usual law-making process and standards like the Administrative Procedures Act. Whether legal or no, it is having an outsized effect.

Venture capital, founders, and companies are leaving the United States due to Gensler’s actions. This will result in the loss of billions of dollars for the U.S. economy. Until lawmakers determine which agency should oversee the cryptocurrency sector, there will continue to be highly rational players working to establish their precedent. The motives behind this will only be revealed with time.

It is evident that the traditional regulatory frameworks do not suit Web3, blockchain, and cryptocurrencies, and they likely need to be updated. As an industry, we must continue to demand innovative approaches to effective regulation in these rapidly evolving markets. And as new bills are proposed, we must provide vocal commentary through any available means.

We must speak out against the assertion that all cryptocurrencies should be classified as securities. This is an oversimplified interpretation, similar to calling an airplane a car because both transport from “point A to point B.” While there are certain points of comparison that need to be addressed, treating a cryptocurrency like a security asset such as stocks or bonds in a new form makes as much sense as calling an airplane a car with wings. This highlights the flaws in our current classification system.

We need a comprehensive and well-structured taxonomy that aligns with these technological advancements, as well as a modernized regulatory body that is capable of navigating the intricacies of these emerging markets. Perhaps, in response to the increasing integration of technology in the financial sector, a new fintech regulator should be established to better handle the complexities of emerging digital technologies and protect financial consumers.

However, the blame cannot solely be placed on Gensler. The issue fundamentally stems from a failure to recognize the transformative impact of blockchain technology on finance. The failure to reach consensus and implement legal frameworks that could have nurtured a thriving industry (and prevented many failures) will be remembered as a significant dereliction of duty.

See also: The New Crypto Bill Gary Gensler Doesn’t Want You to Know About | Opinion

It is encouraging that House Financial Services Chair Patrick McHenry (R-NC), Agriculture Committee Chair Glenn Thomspon (R-PA), and Senators Cynthia Lummis (R-WY) and Kristen Gillibrand (D-NY) are now introducing a crypto regulation bill.

However, crypto has been present for almost 15 years. Even Europe only introduced the MiCA regulation in 2020. So while Gensler aims to make this summer memorable for crypto firms, his ability to do so is a failure of elected representatives over the years to acknowledge that crypto is here to stay.