Some ‘dirt’ on the SEC ChairSEC Chair's 'dirt
For both the crypto community and gold traders, Gary Gensler is a figure hated by both groups, but based on past experiences, he may be more adept at “sailing against the wind” than some people imagine.
Original title: “Gensler’s Done It All Before”
Author: Jonathan Bier, BitMEX
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Gary Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC), is a prominent figure in the cryptocurrency field. He is at the center of almost everything, including regulatory actions against Coinbase and Binance, the approval of Bitcoin ETFs, potential rules to prevent institutions from acting as cryptocurrency custodians, and a series of legal cases.
These activities by the SEC have been key driving factors for cryptocurrency prices in recent years, whether it is investigations and charges leading to price drops, or price increases when the SEC is perceived to have failed in court. Some people in the crypto community are enthusiastic about opposing and mocking Gensler, pointing out potential logical fallacies, inconsistencies, and contradictions in his positions. Crypto Twitter is full of Gensler memes, and there is even a Gensler Coin that has been created. For some people, Gensler is quickly becoming the most prominent villain in the cryptocurrency field, attracting deep scrutiny from many.
However, something that today’s young cryptographers may not know is that Gary Gensler has previously understood everything they know, at least to some extent. Gensler has also been portrayed as another passionate and dedicated “rebel” in the online community. The best candidate for the Bitcoin pioneer movement is the conspiracy macro trader/gold bug/gold and precious metals trader community from 2009 to 2012. Interestingly, this group was not a friend of Gensler either.
Today, Gensler is the chairman of the U.S. Securities and Exchange Commission (SEC), but in an earlier period, he held the same position in the commodity sector – chairman of the Commodity Futures Trading Commission (CFTC). At that time, some people in the internet-driven gold and precious metals trading community also did not like Gensler. Like today, Gensler was repeatedly accused by an active and passionate community of improper regulatory behavior, failing to protect the interests of small participants, and benefiting large financial institutions.
While history never repeats itself, it often rhymes
In this article, we try to compare the situation from 2009 to 2012 with the current cryptocurrency field. Of course, although there are many key differences, there are also some strange similarities. The most notable, of course, is Gary Gensler, who plays very similar and prominent roles in both situations.
The Core Narrative of Gold and Precious Metal Trading from 2009-2012
Incompetent bankers lost a significant amount of money during the 2008 financial crisis. Politicians with conflicting interests then used taxpayers’ money to bail out the bankers, exacerbating the imbalance and further solidifying crony capitalism and perverse incentives, thereby worsening the situation. The excessive burden of public debt resulted from the massive bailouts. The US government was unable to repay its debt, leading to rampant inflation. This is why people should invest in gold, as it is an asset that the authorities cannot inflate its value.
The Core Narrative of Bitcoin and Cryptocurrency Trading from 2013 to the Present
Compared to precious metals, the positive narratives surrounding cryptocurrencies are more diverse.
· The total supply of currencies like Bitcoin is known and cannot be modified, making them superior to the US dollar, which can experience inflation due to an inappropriate debt burden.
· Anti-censorship currencies are an area with promising growth due to a system increasingly sensitive to expanding surveillance.
· New distributed digital technologies enable decentralization.
· Unstoppable computations with a large number of participating users.
· End users have ownership of their own data and platforms, which is a growing field as large tech companies increasingly utilize user data.
Gold and Precious Metals
Relative to the size of the physical market, the open interest value of the gold contracts on the Chicago Mercantile Exchange (COMEX) is extremely high. Eventually, more and more traders will demand physical delivery for their long positions, and the trading platforms will be unable to deliver. As the price of gold rises, the trading platforms will go bankrupt. This will further erode confidence in the US dollar. To restore confidence in the US dollar, the government will be forced to reintroduce gold convertibility (as before 1971), unless the price is even higher. This will reduce economic manipulation and ultimately achieve a stronger economy (after a painful period). Gold holders will become extremely wealthy.
Bitcoin and Cryptocurrencies
The final vision for many is the widespread adoption of these distributed financial systems. This will diminish the importance of the dominant centralized financial system. As a result, it will increase financial and economic freedom, leading to a more robust and flexible economy, and the value of cryptocurrencies will correspondingly increase, benefiting their holders.
Gold and Precious Metals
To defend the integrity of the US dollar, US authorities and their cooperating major banks are manipulating the price of gold downwards.
There are accusations that traders at JPMorgan Chase, HSBC, and other major banks have access to exchange data, allowing them to see the clearing prices of other traders. Other allegations include intentionally triggering crashes and profiting from them during periods of illiquidity. Another issue that has been raised is the lack of position limits, which allows some large entities to dominate and manipulate certain markets. Bullion banks have also been accused of underestimating the leverage amounts of unallocated gold and silver versus physical reserves.
Some people accuse these banks of colluding with the Commodity Futures Trading Commission, claiming that the CFTC allows traders to manipulate these markets to defend the US dollar. Due to the so-called revolving door between regulatory agencies and large banks, this means that regulatory agencies allow manipulative behavior to continue, which allegedly makes it nearly impossible for small traders to profit from precious metal trading.
Bitcoin and Cryptocurrencies
It is alleged that certain US interest groups do not want cryptocurrencies to succeed and they want to protect the business models of large financial institutions such as JPMorgan Chase, Goldman Sachs, CME Group, and BlackRock. These institutions have been accused of having deep-rooted relationships with US regulatory agencies. The theory further suggests that US regulatory agencies will subsequently launch unfair and harsh crackdowns on domestic cryptocurrency companies and provide hypocritical explanations for legislation. We have seen similar allegations citing the SEC’s actions against Coinbase, Binance, Silvergate, and Digital Money Group. Meanwhile, US regulatory agencies are said to be “weaponizing” banks by encouraging them to block transactions they don’t like, such as those involving crypto-native companies. This could allow established financial institutions to profit from the booming cryptocurrency space without competition, while hindering the adoption of true cryptocurrencies.
Gold and Precious Metals
The global macroeconomic precious metals community consists of thousands of “day traders” who spend several hours each day trading precious metal contracts and other macro tools on various platforms, often with leverage. Many of these traders are professionals in the financial services industry, while others are amateurs. There are also many other members in the community who are not traders. Various news services, websites, podcasts, blogs, and research distributors are available to share key narratives. Zerohedge is an important source of timely news and information. There are also several metal and mining investment conferences where community members can meet.
Bitcoin and Cryptocurrencies
The global cryptocurrency community consists of thousands of “day traders” who spend several hours each day trading cryptocurrencies on various platforms, often using leverage. There are also many other members in the community who are not traders. The community communicates through various online platforms such as mailing lists, IRC, podcasts, Telegram groups, Bitcointalk, Reddit, Discord, and Crypto Twitter. There are also many conferences and meetups around the world.
Whether it is the gold and precious metals trading community or the cryptocurrency trading community, they are all hostile to Gary Gensler.
Another notable example of history repeating itself is the existence of dissenting commissioners who hold sympathetic views towards movements in their respective fields. Bart Chilton expressed his views on manipulation of precious metal prices, while Hester Peirce expressed her different views on SEC cryptocurrency regulatory strategies. In both cases, the dissenting commissioners are highly respected in their respective fields and among industry professionals. Chilton and Peirce have both participated in industry conferences/podcasts and interacted with their respective communities. Without a doubt, Gensler’s comments on Peirce today may be somewhat frustrating, just like his comments on Chilton thirteen years ago.
Manipulation of precious metal prices
Many of the accusations of manipulation of precious metal prices during the 2010 period originated from whistleblower Andre Maguire in London. Maguire claimed that he had previously reported to the U.S. Commodity Futures Trading Commission (CFTC) before abnormal price fluctuations occurred, and his predictions were only proven correct when the predicted price changes actually happened. Maguire claimed that the manipulation and illegal activities were mainly carried out by traders at J.P. Morgan, sacrificing the interests of small traders who subsequently suffered losses. As a result, J.P. Morgan’s CEO Jamie Dimon is sometimes seen as a villain by gold investors.
Blythe Masters, widely regarded as the inventor of credit default swaps (CDS), was the head of J.P. Morgan’s commodities business at the time. Therefore, she is seen as another villain by gold investors. She held that position until the commodities division was sold in 2014. Critics believe that the sale of the commodities division was J.P. Morgan’s attempt to evade responsibility for the division’s alleged misconduct. Ironically, after that, Blythe founded Digital Asset Holdings, a company widely regarded by insiders in the cryptocurrency industry as a typical “blockchain not bitcoin” fictional project and a waste of funds. Blythe later served as a non-executive director at Credit Suisse, which collapsed in 2023.
Gensler’s role in the precious metals market
Some people in the precious metals trading community accuse the CFTC and Gary Gensler of turning a blind eye to the market manipulation by financial institutions during the period from 2009 to 2012. The more extreme part of the community sees this as a conspiracy. In their view, banks like J.P. Morgan intentionally manipulated the price of gold to fall as part of a price suppression scheme, while regulatory agencies turned a blind eye and even colluded with the banks, because manipulating the price of precious metals to fall is a secret policy of the U.S. government. Some say Gensler was a key driver of this conspiracy. This claim is somewhat similar to the later London Interbank Offered Rate (LIBOR) manipulation scandal, where some accused bankers argued that their actions were known and supported by regulatory agencies.
Another accusation against Gensler by some gold investors is that he is expected to become the next Treasury Secretary in the next Democratic government. This anticipated appointment is seen as a political power structure rewarding Gensler, allowing large banks to manipulate the metal market without punishment. And a few years later, Gensler was indeed appointed as the Chief Financial Officer for Hillary Clinton’s 2016 presidential campaign, so it was possible for him to become the Treasury Secretary if she had won.
Action from the U.S. Commodity Futures Trading Commission
In September 2020, years after Gensler had already left the CFTC and completed his blockchain lectures at MIT, regulatory agencies finally took action against JPMorgan Chase for fraud and manipulation in the precious metals market. This resulted in a fine of $920 million. However, by this time, most of the precious metals trading community had dispersed. Given the lackluster performance of precious metals between 2012 and 2020, many turned to the cryptocurrency field, while others lost interest. For some, the CFTC’s action in 2020 completely validated their positions and theories. Additionally, in July 2013, JPMorgan Chase was fined $410 million for its involvement in the energy market, which is often considered further evidence of manipulation by its commodities division.
In defense of financial institutions, it can be argued that these regulatory actions can be seen as normal business costs. Since 2000, JPMorgan Chase has had over 265 violations, with total fines amounting to $39 billion. Therefore, JPMorgan Chase may have been earning profits through improper conduct in various markets, and precious metals are just one of them. In fact, the $920 million fine is only the 8th largest fine they have received since 2000. Therefore, the manipulation of precious metals may not be as unique, significant, or unprecedented as some gold enthusiasts claim. Although it cannot be denied that this seems like a somewhat weak and cynical defense. The actions of the CFTC also do not seem to prove systematic manipulation by JPMorgan Chase of gold and silver prices, as some conspiracy theories suggest. They may have manipulated the prices of gold and silver for the purpose of earning more profits without the consent of regulatory agencies or as part of a secret government policy. Furthermore, during this period, JPMorgan Chase and Blythe Masters insisted that they had never engaged in proprietary trading in the precious metals market, but only facilitated customer orders and market-making.
Gensler accused of playing both sides in cryptocurrency
There aren’t many details here because many readers are familiar with and know the allegations against Gensler within the cryptocurrency community. Specifically, Gensler had a positive attitude towards cryptocurrencies when he attended the “Blockchain and Money” course at MIT in 2018, but later took a more negative stance. As early as 2018, some people believed that Gensler may have used misleading language commonly seen in ICOs when promoting the Algorand token.
In October 2021, Gensler also met with FTX CEO SBF and other FTX executives, and some people accused him of having close ties to the company’s personnel. In addition, people questioned the inconsistency between Gensler’s previous statement that “not many cryptocurrencies are securities” and the SEC’s current allegations against him.
In light of the recent regulatory crackdown by the U.S. SEC, some people accuse Gensler of being “hypocritical” and behaving inappropriately, being closely associated with fraudulent organizations while harshly cracking down on more honest companies. At the same time, some critics claim once again that his goal is to become the Treasury Secretary.
Regardless of how you view Gensler, it is important to remember his unique experiences over the past 15 years or so. Gensler’s past experiences may make him more “resilient” than some people imagine.
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