The SEC’s Gensler Era and Its Impact on Crypto Market Integrity and Investor Confidence

The collapse of FTX in late 2022 marked a watershed moment for the crypto industry, exposing systemic vulnerabilities in governance, transparency, and regulatory oversight. Under SEC Chair Gary Gensler’s tenure (2023–2025), the agency adopted a dual strategy of aggressive enforcement and cautious rulemaking, aiming to restore market integrity while navigating the legal and technical complexities of digital assets. However, the Gensler era has left a mixed legacy: while it underscored the SEC’s commitment to investor protection, it also revealed regulatory ambiguities that continue to erode long-term confidence in crypto markets.

Regulatory Credibility: A Double-Edged Sword

Gensler’s approach to crypto regulation has been characterized by a “regulation by enforcement” model. In 2024 alone, the SEC filed 583 enforcement actions, a 26% decline from the prior year but still resulting in $8.2 billion in financial remedies, with over half tied to a major crypto case [3]. These actions, targeting violations of the custody rule, off-channel communications, and marketing rule breaches, signaled a zero-tolerance stance toward misconduct. Yet, the agency’s refusal to clarify the legal status of digital assets—most notably in its denial of Coinbase’s petition for rulemaking—has created a paradox. The Third Circuit’s rebuke of the SEC’s “conclusory” reasoning in Coinbase Inc v. SEC [1] exposed the agency’s inability to articulate a coherent framework for regulating tokens, undermining its credibility among market participants.

This regulatory ambiguity has real-world consequences. According to a study by Stanford’s Journal of Business, Law & Policy, SEC enforcement actions against crypto firms have a more pronounced negative effect on Bitcoin prices compared to similar actions by the CFTC [5]. Investors, particularly retail ones, interpret inconsistent enforcement as a signal of instability, exacerbating volatility and deterring long-term capital allocation.

The Enforcement-Transparency Trade-Off

While enforcement actions have bolstered short-term accountability, they have also diverted attention from proactive rulemaking. The SEC’s June 2025 withdrawal of proposed amendments to the shareholder proposal rule under Exchange Act Rule 14a-8 [1]—a move framed as a response to industry pushback—illustrates this tension. Similarly, the agency’s delayed finalization of rules for private fund transparency and ESG disclosures [4] has left gaps in investor protections.

The Prager Metis case, which settled for $1.95 million over faulty FTX audits [3], highlights the SEC’s focus on downstream accountability. However, critics argue that this approach prioritizes punishment over prevention. As stated by SEC Commissioner Grewal in a July 2024 speech, “Enforcement without clarity is a Band-Aid, not a cure” [2]. The agency’s reluctance to define “securities” in the context of crypto—despite the Third Circuit’s demand for a “reasoned explanation” [1]—suggests a strategic preference for incrementalism, which risks perpetuating uncertainty.

Long-Term Investment Risks: A Gensler Paradox

The Gensler era’s regulatory duality has created asymmetric risks for investors. On one hand, heightened enforcement has curtailed fraudulent activity, as seen in the SEC’s crackdown on preferential treatment in private funds [4]. On the other, the lack of clear rules has incentivized capital flight to jurisdictions with more predictable frameworks, such as Singapore and the EU. A 2025 report by Ropes & Gray notes that the SEC’s “concept release” on foreign private issuers [1] may signal an attempt to retain U.S. market dominance, but the delay in finalizing crypto-specific rules risks ceding ground to global competitors.

Moreover, the SEC’s ESG initiatives—while laudable in intent—have introduced new layers of complexity. Gensler’s push for standardized sustainability metrics [5] aligns with broader investor demands for transparency. However, the agency’s failure to harmonize ESG disclosures with crypto’s unique attributes (e.g., energy consumption, tokenomics) has left investors with fragmented data, complicating risk assessments.

The Post-Gensler Outlook: A New Era of Uncertainty?

With Gensler’s departure and the nomination of Paul Atkins as his successor, the SEC’s approach is poised to shift. Atkins, a former SEC enforcement chief and Trump appointee, is expected to prioritize traditional fraud cases over crypto-specific rules [6]. While this may stabilize enforcement activity in the short term, it raises concerns about the agency’s capacity to address emerging risks, such as decentralized finance (DeFi) and tokenized assets.

The new administration’s deregulation agenda, including a pause on FCPA enforcement [1], further complicates the landscape. While state-level initiatives—particularly in California—will likely maintain pressure on companies, the federal SEC’s reduced focus on innovation could stifle the development of robust compliance frameworks. This duality—federal inaction vs. state vigilance—may deepen regulatory fragmentation, increasing compliance costs for firms and diluting investor confidence.

Conclusion: The Path Forward

The Gensler era has underscored a critical truth: regulatory credibility in crypto hinges on balancing enforcement with clarity. While the SEC’s actions post-FTX have reinforced investor protection, the agency’s reluctance to define digital assets has perpetuated a “regulation by enforcement” cycle that stifles innovation. For long-term investment risk to abate, the SEC must transition from reactive measures to proactive rulemaking—a task that will require navigating political headwinds and legal challenges.

As the crypto market evolves, investors must weigh not only the technical merits of projects but also the regulatory environment’s stability. In a sector where trust is paramount, the SEC’s next steps will determine whether crypto remains a speculative asset class or matures into a cornerstone of global finance.

Source:
[1] Capital Markets & Governance Insights - July 2025 [https://www.ropesgray.com/en/insights/alerts/2025/07/capital-markets-governance-insights-july-2025]
[2] Enforcing the Federal Securities Laws in the Age of Crypto [https://www.sec.gov/newsroom/speeches-statements/grewal-remarks-age-crypto-070224]
[3] SEC Enforcement Year-End Overview [https://www.whitecase.com/insight-alert/sec-enforcement-year-end-overview]
[4] SEC Proposes to Enhance Private Fund Investor Protection [https://www.sec.gov/newsroom/press-releases/2022-19]
[5] INVESTOR REACTION TO SEC AND CFTC ENFORCEMENT [https://lira.bc.edu/files/pdf?fileid=28a8761d-2113-4a4a-95d6-aaaae4f1c91f]
[6] SEC Enforcement: 2024 Year in Review [https://corpgov.law.harvard.edu/2025/01/27/sec-enforcement-2024-year-in-review/]