A Pro-Crypto candidate for SEC leadership?

Trump’s Criticisms of Gensler

At the major Bitcoin 2024 rally in Nashville, Trump harshly criticized Gensler for his “aggressive” handling of the sector. According to Trump, the SEC’s war on crypto needs to end, and it’s essential to promote a regulatory framework that supports, rather than restricts, innovation in the sector.

Gensler has indeed initiated numerous lawsuits against major crypto platforms like Binance, Coinbase, Ripple, Uniswap, and Kraken, accusing them of federal regulatory violations. These actions have not only shaken the sector but also slowed the development of crypto services in the United States.

Trump believes these measures go against U.S. interests and its global competitiveness. He has explicitly promised that, by 2025, the SEC’s focus would shift toward a “pro-crypto” regulation to encourage the growth of businesses in this sector.

To fulfill his campaign promises, Trump hinted that Gensler’s days as head of the SEC were numbered, according to Brad Garlinghouse, CEO of Ripple. This raises the question of who might replace him.

---

The List of Potential Candidates

Daniel Gallagher

Among the potential candidates, Daniel Gallagher, a former SEC commissioner and currently Chief Legal and Corporate Affairs Officer at Robinhood, appears to be a leading choice for the position.

As an executive at Robinhood, a platform that allows trading in both stocks and cryptocurrencies, Gallagher is well-versed in the challenges and specific issues facing the sector. Notably, crypto-related revenue at Robinhood reached $81 million in Q2 2024, a 161% increase from the previous year.

He has openly criticized the SEC for its excessively strict approach to cryptocurrencies, which he calls a “scorched-earth policy” due to its stifling impact on innovation. His experience as a former regulator makes him a strong candidate to reform the SEC, adopting policies that favor industry growth while easing some of the regulatory burdens.

Hester Peirce

Hester Peirce, nicknamed “Crypto Mom” for her support of the industry, is also a top choice for a key role at the SEC (potentially as interim chair).

A Republican SEC commissioner, Peirce has often criticized the Biden administration and Gary Gensler’s approach. She is seen as capable of leading rapid reform within the SEC and could also lead a federal task force on crypto policy, aligning regulations with Trump’s ambitions for the sector.

Here are two of Hester Peirce’s most notable proposals:

• Safe Harbor: After her initial proposal in 2020, Peirce updated the framework in 2021. This proposal grants a three-year period for crypto projects to decentralize their operations without needing to register with the SEC. However, the proposal will likely need further updates as it primarily focuses on initial coin offerings (ICOs).

• Digital Sandbox: A U.S.-U.K. partnership to establish a regulatory sandbox for crypto. This initiative would allow companies to experiment with technologies like blockchain under real-world, regulated conditions, facilitating innovation while adhering to both countries’ standards. It aims to provide markets access to innovative products without overly burdensome regulatory requirements, continuing her past efforts to support technological innovation.

Mark Uyeda

Mark Uyeda, a Republican SEC commissioner, is another strong candidate for a key role in the new administration.

Recently, he criticized the SEC’s actions against crypto firms, stating that they are largely based on administrative registration violations without evidence of fraud or consumer harm. He argues that the SEC’s war on crypto must end and advocates for fairer, balanced regulation.

Paul Atkins and Chris Giancarlo

Other names mentioned include Paul Atkins, a former SEC commissioner who advised Trump during the previous transition, and Chris Giancarlo, a former chair of the Commodity Futures Trading Commission (CFTC).

Giancarlo, known as “CryptoDad,” has always championed clear and fair rules for the sector. His deep knowledge of derivatives and reputation as an innovation advocate make him a strong candidate to influence U.S. crypto policy, particularly in areas regulated by the CFTC.

---

How Decisions Are Made at the SEC

The SEC is led by five commissioners appointed by the U.S. president. The SEC chair, currently Gary Gensler, holds significant influence over the agency’s priorities. While each commissioner has an equal vote in decisions, the chair directs strategic choices and can propose specific rules or enforcement actions in line with their political leanings. For political neutrality, no more than three commissioners may belong to the same party. Commissioners serve five-year terms, with one replaced each year.

Here are the term expiration dates for the SEC commissioners:

• Gary Gensler: June 5, 2026

• Hester M. Peirce: June 5, 2025

• Caroline A. Crenshaw: June 5, 2024 *

• Mark T. Uyeda: June 5, 2028

• Jaime Lizárraga: June 5, 2027

*Commissioners may continue their duties for up to 18 months after their term expires.

SEC decisions, including new rules, are made by majority vote among the commissioners. New rules undergo a public consultation process before a commissioner vote. For the crypto sector, this means that changes in SEC composition could influence digital asset regulations, potentially easing requirements to foster innovation.

The SEC also enforces laws through investigations and lawsuits against firms suspected of fraud or regulatory violations. A leadership change could reorient these efforts, focusing more on clear fraud cases while reducing actions over administrative registration issues.

Although the SEC is an independent agency, it is influenced by political factors and Congressional pressures, particularly via budget allocation. Under a pro-crypto Trump administration, the SEC could adopt a more industry-friendly stance, promoting innovation while reevaluating its priorities in pursuing crypto companies.

---

Is This a Green Light for All Cryptos?

The Trump administration’s pro-crypto stance, along with the potential replacement of Gary Gensler, raises hopes for a “green light” for the crypto industry.

However, the situation is more nuanced. While Trump’s approach may aim to encourage innovation and reduce certain regulatory burdens, it does not imply a lack of rules. The crypto sector has long called for a clear regulatory framework that provides companies with stable guidelines while offering investor protections against fraud and abuse.

A key question involves the activation of the “fee switch” mechanism for certain DeFi protocols. This mechanism would allow token holders on decentralized platforms to receive a portion of the revenue generated, potentially enhancing returns and distributing more value.

However, activating this feature could result in these cryptocurrencies being classified as “securities,” requiring them to register with the SEC. Cryptos considering the fee switch in favorable regulatory conditions include AAVE, ENA, UNI, and BLUR.

During his campaign, Donald Trump announced plans to create a dedicated advisory committee on cryptocurrencies if elected. This committee would have 100 days to design clear, favorable regulations for the U.S. crypto sector.

So far, Gary Gensler has taken a strict approach, emphasizing aggressive enforcement actions over creating specific crypto rules. Consequently, many companies are left in legal uncertainty, unsure if their products or services meet current regulations.

It remains to be seen how a new approach could balance effective consumer protection with fostering innovation. Political leaders, regulators, and industry stakeholders will need to collaborate to establish rules that support technological growth while safeguarding investors.