The crypto industry poured millions of dollars into the presidential and congressional races, but its most prominent election victory is likely to be the departure of SEC Chair Gary Gensler.
The former Goldman Sachs banker has led the strongest regulatory crackdown on the digital-asset industry, bringing dozens of cases against crypto companies and traders large and small, including the financial behemoths Coinbase Global and proprietary trading firm DRW Holdings.
President Donald Trump's decisive victory all but ensures a pullback on crypto-related enforcement once he takes office. In July, Trump pledged to fire Gensler on the first day of his second administration while headlining a bitcoin conference in Nashville.
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The Securities and Exchange Commission has often touted its success in court in obtaining judgments that align with its view that decades-old securities laws apply to the upstart digital asset class. It's also notched some large fines against some of the biggest names in the industry.
The agency won a massive, $4.5 billion fine and disgorgement from Terraform Labs, a stablecoin issuer, and founder Do Kwan in April. The agency hasn't yet released its annual enforcement report for fiscal 2024 actions, but in the previous year, the agency brought 46 such cases, a more than 50% increase from the year before, according to a report by consulting firm Cornerstone Research.
"Some crypto cases have been legit fraud cases and I hope those continue and I hope we get more of them," said J.W. Verret, professor at George Mason University's Antonin Scalia Law School in Arlington, Virginia. "A lot of crypto cases have been registration only, foot-fault cases when registration is impossible."
The next SEC chair is expected to push forward new regulations that will modify existing securities laws or enable digital asset companies to become compliant with rules that Gensler has long admonished them for flouting. That will also serve to rein in enforcement.
Bipartisan crypto legislation that supports that goal is now a stronger prospect with the Senate now in solid Republican control.
"We expect that both the Trump administration's and new Congress' approach to crypto regulation to be much more constructive," said Jack Inglis, the chief executive officer of the Alternative Investment Management Association, a London-based trade group representing hedge funds and private equity firms.
That means policies "recognizing the need to embed crypto in the broader financial services framework while taking account of the technological differences with traditional finance leading to a more bespoke approach in many areas," he said.
The SEC's enforcement cases against crypto companies have centered on whether their products fit within the decades-old definition of a security, as laid out in the U.S. Supreme Court's opinion SEC v. W.J. Howey. That hasn't been a good approach, according to William McLucas, a former SEC enforcement director, now a partner at WilmerHale. McLucas spoke during a securities enforcement conference in Washington on Wednesday.
"That can't be the solution because whether you like crypto or you don't like crypto it's not going away," McLucas said. "The enforcement cases that have been brought are what they are, but they keep bringing them, and we keep seeing crypto products," he said.
The change in political power favors a stronger win for Coinbase in court, according to Elliot Stein, a senior litigation analyst at Bloomberg Intelligence. Should the case reach the U.S. Supreme Court, it could result in the narrowing of the Howey test.
"We gave Coinbase a 60% chance of winning on the merits, yet now believe it's 80% likely to prevail, as we expect a more crypto-friendly SEC in Trump's second term," Stein wrote in a note Thursday.
Digital assets were a focus of 18% of all the tips, complaints and enforcement referrals at the agency in fiscal year 2024, the SEC inspector general said in a recent report. The SEC's Office of Investor Education and Advocacy received nearly 6,000 such complaints during that same period, more than double any other type of complaint, the IG said.
Gensler departure
Despite Trump's vow to boot Gensler from office immediately, it may boil down to whether the SEC chair resigns by inauguration day. Some of Gensler's fiercest critics in financial services are already calling for his immediate resignation.
"Last night the people voted for this country to take a new direction, and Chairman Gensler should respect that vote by stepping down from his position immediately," said Chris Iacovella, the president and chief executive officer of the American Securities Association, which represents regional brokers and other financial services firms.
If Gensler follows Washington tradition and departs, it would leave the agency split 2-2 along party lines until a new chair can be confirmed. That would stymie further aggressive enforcement, particularly with Hester Peirce, dubbed "Crypto Mom" still a commissioner.
One crypto industry executive, who requested to speak on background to speak frankly, said they anticipate Gensler may still want to file cases against companies like Uniswap and OpenSea that have already received "Wells notices" — an enforcement process formally notifying a company they're under SEC investigation.
But other enforcement cases could be slow-rolled. Agency staff, aware that an incoming SEC chair, particularly one who back's Trump's vow to shrink the size of the federal government, might look unkindly on employees taking aggressive actions in the months leading up to a change in leadership and policy, the industry executive said.
The SEC declined to comment.
— With assistance from Olga Kharif.
