Could Gary Gensler Be on the Way Out? And Who Might Replace Him?

4 mins
Updated by Michael Washburn
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In Brief

  • The SEC under Gary Gensler has suffered major legal setbacks against crypto firms such as Ripple and Grayscale.
  • Prominent exchanges like Binance and Coinbase seem poised to fight the SEC bitterly in court rather than settle.
  • If fired, his replacement could be CFTC Chair Rostin Behnam or a moderate former commissioner like Annette Nazareth.
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Gary Gensler is not having the best 2023. The Securities and Exchange Commission (SEC) chair and his agency have taken some serious hits in the courts lately when it comes to crypto industry enforcement.

Which leads to a question. Could Gensler leave, on one set of terms or another, before his tenure officially ends in 2026?

SEC Lost in Groundbreaking Ripple Case

The most recent blow to the SEC came as an appeals court called out inconsistencies in the agency’s rationale for denying a Bitcoin exchange-traded fund conversion sought by Grayscale. The SEC had previously approved bitcoin futures-based ETFs. However, the agency could not explain why it wouldn’t do the same for a spot ETF. Hence, the court gave Grayscale a victory.

To add insult to injury, on August 30, Senator Warren Davidson (R-OH) renewed his calls for Gensler to resign.

An even bigger blow was the SEC’s loss to Ripple. The preliminary court decision challenged the SEC’s broad assertion that most cryptocurrencies are securities. A court ruled that XRP was not a security when sold to investors on an exchange, a huge win for the industry.

While the court drama isn’t over, a final defeat in the Ripple suit could prove devastating for the SEC. More significantly, each adverse ruling exposes flaws in the SEC’s legal theories and enforcement strategies under Gensler.

Learn more about how the US government defines a security: What Is the Howey Test and How Does It Impact Crypto?

Why the SEC’s Losses Matter

Gensler has strived to portray the SEC’s stances as natural extensions of existing law. However, dissenting judicial opinions lend credence to the blockchain industry’s arguments that outdated regulations require urgent modernization.

The SEC soon faces critical tests via enforcement actions against major exchanges Binance and Coinbase. These well-resourced giants have openly embraced a combative posture toward the SEC.

A previous SEC complaint against the smaller Bittrex exchange ended in a relatively mild settlement as Bittrex exited the US market. However, the SEC’s complaints against Binance and Coinbase closely resemble the Bittrex case, suggesting those larger firms may fancy their chances in court.

If Gary Gensler is fired, it will have a lot to do with his zealous stance on regulating crypto. Source: Bloomberg.

Already, the SEC failed to fully achieve a requested asset freeze against Binance. Ominously, the agency then took the highly unusual step of filing a sealed motion, hinting at a larger looming case, perhaps involving the Justice Department.

This string of judicial defeats also signals potential vulnerability for the agency. Regulated entities may perceive decreasing risks associated with challenging the SEC’s authority and interpretations. 

Firms generally agree to settlements when confident a court fight would prove futile or overly burdensome. However, the SEC’s losses could embolden firms to take their chances in the court rather than acquiesce to SEC demands.

Could Gensler Get the Boot?

The chair of the SEC is nominated by the president of the United States and must be confirmed by the Senate. The term for an SEC chair is five years.

In a discussion with BeInCrypto, Hugo Volz Oliveira, secretary and founding member at New Economy Institute, said Gensler had been the most active chair since 2009.

“And, in particular, he has been the SEC chair who has acted the most in recent times without a congressional mandate. This is not only about crypto, but about all types of market participants being discontent with this leadership,” Oliveira said.

“That’s more important than the multiple court failures regarding his oversight of the US crypto market. Across the board, and outside the crypto bubble, many believe Gensler isn’t effective and is solving non-material issues that have no real-world impact,” he added.

Mark Lurie, CEO of Shipyard Software, told BeInCrypto he was skeptical that Gensler would be removed. 

“Gensler isn’t going anywhere, because the anti-crypto agenda isn’t coming from him, he’s just prosecuting it on behalf of the Biden administration. The only way he’ll get removed is when a new administration is elected with a different agenda.”

What If Gary Gensler Is Fired?

President Biden and his Treasury Secretary, Janet Yellen, have so far been “very supportive” of the SEC’s direction under his watch. Despite widespread anger over his tenure, it’s unlikely Gary Gensler will get the sack on Biden’s watch.

However, those in the running for a potential vacancy include Rostin Behnam. He is the current head of the Commodity Futures Trading Commission (CFTC), appointed in January 2022. Gensler was previously head of the CFTC in the Obama administration, and some in Washington see the move as a step up.

If Gary Gensler is fired, there are still other options. Another is Annette Nazareth, a former commissioner herself who has sat on the advisory board of crypto mining firm Bitfury.

Nazareth is widely known as a moderate in Washington. Her appointment could signal an olive branch to the industry after months of heated legal battles.

Of course, if Gensler doesn’t leave before Biden exits the White House, and Trump wins in 2024, it would be the former president nominating his successor. One of the lead candidates in that scenario is Hester Peirce, a member of the Commission and a Trump appointee.

Peirce has long been a defender of the crypto industry and has written many dissenting opinions criticizing regulatory overreach.

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Josh Adams
Josh is a reporter at BeInCrypto. He first worked as a journalist over a decade ago, initially covering music before moving into politics and current affairs. Josh first owned Bitcoin in 2014 and has followed the space ever since. He is particularly interested in Web3 adoption, policy and regulation, CBDCs, privacy, and the future of the metaverse.