Crypto regulation's about to get messy. Gensler has a mop.

Gensler is getting his mop out

It was a rare conversation: the sitting chair of the SEC with his immediate predecessor. Gary Gensler’s one-on-one chat with Jay Clayton at the DACOM Summit underscored what’s changed for crypto. Both talked tough. But Gensler is ready to clean house in a way Clayton held back from.

Yes, blockchain and crypto can be a “catalyst for change,” Gensler said at the event, part of a series started by Solidus Labs, the digital assets market monitoring firm. But the industry has been growing so fast and appears to be defying so many rules that Gensler is worried about “a financial stability event.”

“We're gonna have a spill on Aisle 3,” Gensler said. “And the public's gonna say: 'Where was the official sector?'”

Send lawyers and money. Gensler has been criticized for comparing crypto to the Wild West. If the metaphor fits, wear it, he says.

• The industry has been rallying “gatekeepers” such as lawyers to figure out how to work the system, he told Clayton (who returned to his legal practice at Sullivan & Cromwell after leaving the SEC). “That's similar to the Wild West: How do we avoid the authorities?” Gensler said.
• We don’t remember many lawyers in the Westerns we watched, but Gensler might actually have history on his side. Anyway!
• Crypto exchanges need regulatory oversight, Gensler stressed. And it doesn’t have to be a contentious process, he said. His message to the industry: “Work with us to see what we need to do to fix some rules that were written in a bricks-and-mortar era.”
• And if they refuse, he suggested, the SEC will push back: “Where appropriate, we're going to use the enforcement tool.”

Crypto wants to take away Gensler’s mop. The crypto industry has a response: Route around Gensler. Most of the industry’s proposals would sideline the SEC in regulating crypto. Which raises the question: Does it miss Clayton?

• Clayton, a Trump appointee, was known for a less combative approach to crypto. He raised a few eyebrows when he joined the advisory board of digital assets custody firm Fireblocks in August.
• And he embraced more of a ”buyer beware” message about crypto, especially during the surge of ICOs about four years ago. He largely left it to state regulators to crack down on the token offerings.
• But tensions between the SEC and the crypto industry also became more pronounced under Clayton. Shortly before he stepped down in December, the SEC unleashed the first major legal crypto brawl, suing Ripple for alleged securities law violations.
• Crypto industry leaders “thought they could throw a fastball by the regulators,” Clayton told his successor at the DACOM event.

Things are going to get messy. Letting crypto have its way would be dangerous, Gensler argued: “People get hurt. Trust is diminished. It’s far better to bring it inside the policy frameworks.” The question, as always, is who ends up in control of the territory as the Wild West yields to civilization.

— Benjamin Pimentel (email | twitter)

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From Protocol | Fintech

Dorsey leaves Twitter, and all of a sudden Square is Block. Did we mention that Jack is really, really into bitcoin? If you needed more evidence, look at Square’s new corporate name. The old Square is still there, but three of its sister businesses under the Block umbrella have a lot to do with cryptocurrencies.

David Marcus, Meta’s crypto boss, is also leaving. The Novi crypto venture is now run by Stephane Kasriel, who has a lot of unanswered questions to resolve.

Coming up: Crypto and institutional investors

Venture capital started the move to treat crypto as just another asset class; now, institutional investors are considering allocating part of their holdings to cryptocurrencies. Watch Dec. 6 as senior reporter Tomio Geron leads a discussion about the impact of crypto on the investing world. RSVP to save your spot now.

Overheard

“I saw some promotion about the official digital yuan, but I am not interested.” —A Beijing office worker, highlighting the challenge for adoption of China’s digital currency, also known as e-CNY.

“The calls that we have quite often have lots and lots of lawyers on them, because it really is fundamentally a massive mindset shift for the way companies run organizations.” —Erika Decker Wykes-Sneyd, Adidas’ vice president of global marketing communications, on the shoemaker’s purchase of an NFT and plans to get into the metaverse.

3 questions with Tom Butta, chief strategy and marketing officer at Airship

What fintech trend are you most excited about?

Financial services is undergoing revolutionary change, with fintech firms making up a full third of all newly minted unicorns in Q3 and total funding at nearly 2x the entirety of last year. This accelerated pace of innovation is finally bringing a somewhat stagnant industry in line with how consumers live their lives — on their phones and in apps. As a result, more people than ever can now more easily save, plan, invest and gain access to financial products and services to improve their lives.

What fintech trend is most troubling for you?

I’m no Luddite and clearly there’s plenty to be excited about with cryptocurrencies, NFTs and resulting mashups with the metaverse. But we are still in the very early days where we can expect to see volatility. Retailers adopting crypto for payments hail from far-off economies with their own issues, or early dabbling experiments that may never leave the lab. So while mainstream adoption is a ways off, Wall Street is making it easy to get caught up in the wave of excitement about getting in early and cashing out rich. Meanwhile, apps make it easier than ever for practically anyone to get involved to make quick (and hopefully informed) decisions above and beyond the sometimes insular early-adopter communities clamoring “to the moon.” As they say, don’t gamble more than you can afford to lose.

What's been your biggest professional blunder and how did it help you?

Not understanding that anything written on a digital platform is forever available in cyberspace. So, that’s all I’m going to say about that. ;-)

Need to know

Capital One dropped its overdraft fees. Big banks are facing pressure over the widely disliked fees from upstart neobanks and Washington regulators alike.

PayPal is offering “buy now, pay later” to Wix merchants. Merchants who build websites with Wix can access PayPal’s credit services.

New York Community Bancorp mints stablecoins. The bank is working with Figure Technologies to mint USDF coins.

Better.com fired 900 people after getting $750 million from SoftBank. The call terminating the employees reportedly lasted three minutes.

Making moves

A former CFPB director is in the running to be the Fed’s top banking regulator. Richard Cordray is among Biden’s picks for the vice chair of supervision.

Diplo, DJ Khaled, Martin Garrix and Future have bought NFTs. They bought Bored Ape Yacht Club NFTs through MoonPay’s “concierge service.”

Deal flow

Crypto.com bought two derivatives companies for $216 million. That’s small change for the crypto exchange, which recently inked a deal to pay $700 million for the naming rights to Staples Center.

Kueski raised $102 million for “buy now, pay later.” The Mexico-based startup also raised $100 million in debt financing.

A MESSAGE FROM VMWARE

The future of financial services will be built on the digital experience as industry leaders look to innovate, drive operational agility, top-line growth and security at scale. VMware is helping organizations accelerate digital-first banking on a trusted foundation with multi-cloud services for all apps.

Learn more

Data point

$1.6 trillion: That’s the increase in Americans’ savings over the past two years as they banked more money due to COVID-19 worries.