Gary Gensler’s departure from the SEC could herald a turning point for the U.S. crypto industry.
Known for his stringent “regulation by enforcement” approach, Gensler’s tenure faced criticism for stifling innovation and lacking clear regulatory guidance.
With new leadership on the horizon, the SEC and other key institutions like the CFTC may pivot toward more collaborative, transparent, and innovation-friendly policies, potentially reshaping the regulatory landscape and restoring market optimism.
This article explores the implications of this leadership shift for digital assets, litigation, ETFs, and legislative progress.
Potential Impact of Gary Gensler’s Exit on Crypto Market Sentiment
Gary Gensler’s tenure has been marked by a strong enforcement stance—what has been often termed as “regulation by enforcement,” which is not conducive for fostering innovation and showing a way forward for virtual assets—unlike regulatory regimes in, say, the UAE.
In the case of the Abu Dhabi Global Market (ADGM) Financial Free Zone, guidance and rules have been in place since 2018, and Dubai’s Virtual Assets Regulatory Authority (VARA) is the world’s first dedicated regulatory body addressing the sector.
Similar developments can be observed with the Monetary Authority of Singapore (MAS), the Swiss Financial Market Supervisory Authority (FINMA), and the Dubai Financial Services Authority (DFSA).
Essentially, what is often needed is official interpretive guidance on the regulator’s stance regarding existing legislation. The lack of such guidance has led many to criticize the SEC’s approach as inconsistent.
For instance, on 14 November 2024, a coalition of 18 U.S. states initiated legal action against the SEC, alleging that the agency exceeded its constitutional authority in its regulation of the cryptocurrency industry.
The lawsuit contends that the SEC’s enforcement actions constitute an “unconstitutional overreach,” infringing upon states’ rights to regulate their own economies and stifling innovation within the rapidly growing digital asset sector.
The Attorneys General (led by Kentucky AG Russell Coleman) contend that the SEC, seemingly aware of the challenges inherent in its expansive “regulatory landgrab,” has deliberately refrained from formalizing its stance through notice-and-comment rulemaking. Instead, the agency has relied exclusively on an “enforcement-only” approach — this will be a key case to watch for 2025.
Having taught courses on blockchain and digital currencies at MIT, many (including myself) had hoped that Gensler’s understanding of the relevant issues would pave the way for a more crypto-friendly and nuanced regulatory approach. The opposite has been true.
Gensler’s departure could (and it seems at this stage, will) signal a significant shift in regulatory priorities, potentially recalibrating the balance between enforcement and rulemaking in the crypto sector.
From a legal standpoint, any leadership change at the SEC requires a thorough review of the agency’s ongoing enforcement strategies and its broader agenda.
While the market has clearly reacted with optimism (primarily as a result of the outcome of the U.S. general election and President-elect Trump’s declared pro-crypto stance), expecting a more favorable environment, the SEC’s statutory obligations and procedural requirements under the Administrative Procedure Act (APA) – a key U.S. federal law that governs the process by which federal agencies (such as the SEC) develop, propose, and implement regulations – will temper the speed of any substantial changes, even with a pro-crypto President-elect Trump. In fact, the APA mandates notice-and-comment periods for new rule-making, ensuring that any regulatory shifts are methodical rather than immediate.
Impact on Tokens Under Intense Litigation
The SEC’s enforcement actions against tokens like XRP, BNB, Cardano, and Uniswap have relied heavily on the “Howey Test” to determine whether these digital assets constitute ‘Investment Contracts’ and are thus subject to U.S. securities laws.
Whilst a principles-based approach to regulation often results in a better holistic framework, to put things in perspective, the “Howey Test” emerged from a case involving citrus groves in 1946 – that is 25 years before the first microprocessor chip (Intel 4004) in 1971, 45 years before the public availability of the World Wide Web in 1991, and 64 years before the issuance of the Bitcoin whitepaper.
Gensler’s departure would not automatically invalidate these cases, as they are grounded in judicial precedents and evidentiary processes independent of individual leadership.
However, the new incoming SEC chair (further details below) might deprioritize litigation as a primary regulatory tool and instead focus on fostering collaboration with the industry. This could manifest in settlements, the issuance of no-action letters, or the introduction of regulatory safe harbors.
For example, the Ripple (XRP) case raises nuanced legal questions, including whether secondary market sales of tokens meet the definition of securities transactions. The new chair might influence the SEC’s litigation strategy, steering it toward negotiated resolutions rather than protracted courtroom battles.
Broadly, Gensler’s departure could also signal a shift toward developing regulatory frameworks that reduce the reliance on enforcement actions to set legal precedents. Such clarity could prevent future disputes and allow industry participants to operate within well-defined legal parameters.
Impact on Pending Crypto Altcoin ETF Applications
Crypto ETFs, particularly those focusing on altcoins, have faced significant hurdles under Gensler’s leadership.
The SEC’s repeated delays and denials have stemmed from concerns over market manipulation, inadequate custody solutions, and insufficient investor protections, as outlined under the Investment Company Act of 1940 (the relevant law regulating mutual funds in the U.S.) and the Securities Exchange Act of 1934.
While Gensler’s exit might lead to a more constructive review of pending applications, the legal standards governing ETF approvals remain unchanged. The SEC is required to substantiate its decisions with evidence, particularly around whether the underlying assets meet the criteria for transparency, liquidity, and resistance to manipulation.
A new chair with a more pragmatic approach could address these concerns by working with self-regulatory organizations (SROs) like FINRA (the Financial Industry Regulatory Authority) and exchanges such as NASDAQ to establish robust surveillance-sharing agreements. This could pave the way for approvals. However, the APA requires that any reversal of prior decisions be fully justified through a transparent and evidence-based process, ensuring that technical and procedural hurdles remain a critical factor.
Additionally, any shift in the SEC’s stance would need to align with broader market infrastructure improvements, such as enhanced custody solutions and clearer guidelines for price discovery mechanisms.
This suggests that while optimism for ETF approvals might increase, the legal and procedural landscape will continue to present challenges.
The Paul Atkins and David Sacks Effect
The announcement by President-elect Trump on Truth Social of the future appointment of Paul Atkins as the new SEC Chair and David Sacks as the “White House AI and Crypto Czar” marks a pivotal moment for the crypto and AI industries.
On one hand, Atkins, a former SEC Commissioner (2002–2008), has a history of advocating for regulatory clarity and market-driven innovation and collaboration. As the CEO of Patomak Global Partners and Co-Chairman of the Digital Chamber’s Token Alliance since 2017, Atkins has worked on developing frameworks to responsibly integrate digital assets into mainstream financial markets. His deregulatory philosophy is likely to shift the SEC toward providing clearer guidance rather than enforcing punitive measures.
On the other hand, David Sacks, a venture capitalist and former PayPal executive, brings a complementary focus on innovation to his new White House role. His appointment as “AI and Crypto Czar” signals a commitment to creating cohesive federal policies that support emerging technologies while addressing risks.
Sacks is expected to act as a bridge between the administration, Congress, and regulatory agencies like the SEC, fostering collaboration and ensuring that regulatory frameworks align with the rapid pace of innovation.
Together, Atkins and Sacks could steer U.S. regulatory policy toward a more supportive stance for the crypto industry, with an emphasis on rulemaking, collaboration, and investor protection. However, given the procedural and statutory constraints of the SEC under the APA (as mentioned above) the impact of these leadership changes will be gradual and measured, ensuring stability during this critical transition period.
This leadership transition will undoubtedly offer a unique opportunity for the crypto industry to engage with policymakers and advocate for balanced, innovation-friendly policies while addressing legitimate investor protection concerns.
And What About the CFTC?
Another significant piece of the puzzle is the Commodity Futures Trading Commission (CFTC), which is critical regulator in the U.S. crypto landscape, particularly overseeing digital assets classified as commodities, such as Bitcoin and Ethereum.
Its jurisdiction often overlaps with that of the SEC, which regulates assets deemed securities, leading to significant regulatory ambiguity and challenges for crypto companies.
While the SEC has frequently pursued enforcement actions against initial coin offerings (ICOs) and tokens, the CFTC has focused on fraud, manipulation, and unregistered trading platforms involving commodities.
Notable cases include the CFTC’s USD 1.2 billion penalty against BitMEX for operating an unregistered trading platform and its actions against Tether and Binance. These enforcement actions underscore the agency’s commitment to addressing misconduct while navigating the evolving digital asset space.
Outgoing CFTC Chair Rostin Behnam has highlighted the agency’s pivotal role in promoting market integrity and addressing illicit activities in the crypto sector, while consistently urging Congress to clarify the regulatory boundaries between the CFTC and SEC. Behnam has warned that the lack of clear legislative guidance risks undermining regulatory effectiveness and stifling innovation. As his tenure ends, the focus shifts to President Trump’s expected nomination for the next CFTC Chair.
Pro-crypto candidate Brian Quintenz, a former CFTC Commissioner, is reportedly emerging as a leading contender. Known for his advocacy of a light-touch regulatory approach, Quintenz has argued that the CFTC is best positioned to lead digital asset regulation, given its expertise in commodities and derivatives markets.
Under Quintenz’s potential leadership, the CFTC could prioritize innovation and provide clearer guidance for crypto businesses, potentially moving the U.S. closer to a framework where the CFTC assumes primary oversight of the crypto market. However, this shift would also raise questions about how the agency balances innovation with investor protection and whether overlapping enforcement actions with the SEC will continue to create compliance challenges for the industry.
The outcome of this leadership transition will significantly shape the regulatory environment for digital assets in the U.S., influencing everything from enforcement strategies to the development of legislative frameworks.
President-elect Trump has also announced plans to establish a Crypto Advisory Council, aiming to reshape U.S. digital asset policies and foster innovation within the cryptocurrency sector, with reports that major cryptocurrency firms are actively seeking participation to influence forthcoming regulatory frameworks. The Council is also expected to develop a Strategic Bitcoin Reserve, aligning with Trump’s campaign promise to bolster the nation’s digital asset holdings.
Details have yet to emerge, but perhaps the Council can be the conduit for coordination and alignment between the SEC, the CFTC, and the industry (and perhaps the Treasury if the plans for the Bitcoin Reserves moves ahead).
Legislative Action Already Underway
Action is already taking place.
At the federal level, the Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide Act of 2024 — commonly known as the BITCOIN Act of 2024 (S.4912) — has elevated the discourse around Bitcoin’s role in public policy. Introduced by Senator Cynthia Lummis of Wyoming, the bill aims to establish a Strategic Bitcoin Reserve, positioning Bitcoin as a strategic asset within the United States’ financial framework.
The act outlines a plan for the U.S. government to acquire up to one million Bitcoins over a five-year period, emphasizing its potential to enhance economic resilience and maintain a competitive edge in the rapidly evolving digital asset landscape. It also provides a legal framework for federal and state-level Bitcoin reserves and encourages public-private partnerships to expand Bitcoin’s utility in governmental operations.
While the legislation has yet to pass, its introduction marks a significant milestone in federal recognition of Bitcoin’s transformative potential and its integration into the broader U.S. financial strategy.
Moreover, at a state-level, we are already seeing actions.
Republican State Representative Giovanni Capriglione formally introduced the Texas Strategic Bitcoin Reserve Act (H.B. No. 1598), an ambitious proposal to establish a state-controlled Bitcoin reserve for Texas. Announced during an X Spaces event, Capriglione detailed the bill’s objectives, citing Bitcoin’s decentralized nature, finite supply, and potential to serve as a strategic asset.
By holding Bitcoin as a reserve, Texas aims to bolster financial stability, hedge against inflation, and position itself as a leader in innovative fiscal policy. The legislation would also allow Bitcoin to be used for tax payments and donations, signaling a broader integration of cryptocurrency into state operations.
This initiative builds on growing momentum at the state and national levels to incorporate Bitcoin into financial governance. In Pennsylvania, the first state to propose a Bitcoin reserve bill (Pennsylvania’s Strategic Bitcoin Reserve Act – H.B. 2481), lawmakers introduced the measure in November 2024, sparking interest across the country. As of now, at least 10 additional states, including Wyoming and Florida, are reportedly in discussions to propose similar legislation.
Industry participants should monitor the evolving regulatory environment closely and prepare to adapt to a potentially more cooperative and transparent framework under Atkins and Sacks, and a potential future pro-crypto CFTC chair, in addition to the numerous draft laws being debated for greater government adoption of Bitcoin for strategic reserve purposes.
