Gensler gone, Lutnick Tether’d, ‘crypto’ enters its Romanov phase

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Gary Gensler is officially out as America’s securities regulator, but Tether’s bestest Wall Street buddy blew his play to become the next Treasury chairman.

On November 21, the Securities and Exchange Commission (SEC) announced that Gensler would resign as chairman effective at noon on January 20, 2025, the day that Donald Trump will be sworn in for his second term as President of the United States. Gensler praised SEC staff as “true public servants” and called it “an honor of a lifetime to have served with them.”

Gensler previously suggested that he planned to serve out his full term, which was set to expire in 2026, despite Trump’s public pledge to fire Gensler “on day one” of his second term. Gensler’s announcement made no mention of Trump.

The day after Gensler’s announcement, SEC commissioner Jamie Lizárraga announced his own intention to step down as of January 17. Lizárraga cited his wife’s “serious illness” as influencing his decision to step down. Both Gensler and Lizárraga issued separate statements praising the other for their respective service.

Lizárraga’s withdrawal will leave just one Democrat (Caroline Crenshaw) on the SEC’s five-member commission. Crenshaw is no great fan of ‘crypto,’ having declared last January that trading of the BTC token is “so susceptible to manipulation, so rife with fraud, so subject to volatility, and so limited in oversight.”

Gensler was the ‘crypto’ sector’s bête noire, accused of standing athwart progress, yelling ‘stop’ at every juncture. Trump has yet to indicate who he might appoint as SEC chair, although pro-crypto figures, including Robinhood (NASDAQ: HOOD) Chief Legal Officer Dan Gallagher and former Commodity Futures Trading Commission (CFTC) Chair Chris Giancarlo, have already said they don’t want the gig.

Current Commissioner Mark Uyeda is likely to be named Gensler’s acting replacement. Uyeda appears to be openly angling for a permanent promotion, telling Fox Business that Trump is “absolutely right” that “the current administration’s war on crypto needs to stop.” Uyeda added that he wants to “work with the Congress, the White House and other federal regulatory agencies to make sure we have a cohesive and comprehensive approach to crypto.”

Once Gensler’s gone, the fate of the SEC’s numerous ongoing actions against ‘crypto’ firms—including Binance, Ripple, Coinbase (NASDAQ: COIN), Consensys, Crypto.com, Cumberland, Kraken, Uniswap, and others—remains unclear. However, many observers expect drama-free resolutions in which the targeted companies pay nominal financial penalties while avoiding any acknowledgment of wrongdoing. Ironically, the SEC just issued its 2024 enforcement report, which included several high-profile actions against crypto firms.

Don’t mess with Texas

The SEC’s legal comeuppance hit another new low last week in the U.S. District Court for the Northern District of Texas. The Court issued a summary judgment that slammed the SEC’s February 2024 revision of its ‘dealer’ definition in a manner that appeared to lump in digital asset liquidity providers.

The SEC’s language change was challenged in April by the Crypto Freedom Alliance of Texas (CFAT) and the Blockchain Association (BA). CFAT, whose members include the Coinbase exchange and the Andreessen Horowitz (a16z) (NASDAQ: ZADIHX) crypto venture capital group, was formed in September 2023 to advocate on behalf of “coherent and predictable regulations for digital assets in Texas.”

The Court ruled that, in revising the dealer language, the SEC had “engaged in unlawful agency action taken in excess of their authority.” The Court said the SEC’s revision “removes the distinction between ‘trader’ and ‘dealer’ as they have commonly been defined for nearly 100 years. The Court refuses to allow such a broad expansion of the Exchange Act.”

The Court not only granted the plaintiffs’ request for summary judgment and denied the SEC’s request for same, it also vacated the Dealer Rule in its entirety. The Court ruled that since the SEC “exceeded its statutory authority in adopting the Final Rule … no part of it can stand.”

The Court’s ruling was never in much doubt, as the Northern District has become a go-to site for right-leaning plaintiffs looking to push back on government rules they don’t like, earning a reputation for ‘judge shopping’ that often sees groups establish shell companies in Texas to enable them to file complaints in the district.

CFAT/BA issued a statement celebrating their victory as a win “for the entire digital asset industry,” which can likely expect far fewer regulatory constraints on its activities come January.

Bessent wins Treasury knife fight

Speaking of, Trump has finished issuing his list of cabinet nominees, including Key Square Group hedge fund founder Scott Bessent, for the all-important post of overseeing the Treasury Department. Trump said Bessent would “Make America Rich Again, Prosperous Again, Affordable Again, and, most importantly, Great Again!”

A longtime Wall Street veteran, Bessent claimed in a July interview to be “excited” about Trump’s recent “embrace of crypto,” adding that he felt “everything’s on the table with [BTC].” However, ‘everything’ doesn’t include the more far-out fantasies of BTC Maximalists who believe BTC will one day supplant the U.S. dollar. Trump’s announcement stated that Bessent shared his goal of “maintaining the U.S. Dollar as the Reserve Currency of the World.”

Bessent wasn’t the choice of Trump-whisperer Elon Musk nor recently appointed Health & Human Services chair Robert F. Kennedy Jr., both of whom pressed Trump to choose Howard Lutnick, boss of Wall Street financial services firm Cantor Fitzgerald (NASDAQ: ZCFITX). Lutnick is also co-chair of Trump’s presidential transition team and surprised many insiders last month by declaring himself to be the best candidate for the Treasury role.

The fight to win Trump’s favor reportedly got very ugly behind the scenes, with reports of Lutnick throwing sharp elbows and trash-talking his Treasury rivals behind the scenes. After being made aware of these sabotage efforts, Bessent reportedly told Lutnick to “go f*ck” himself on a call that Lutnick placed to his rival.

Lutnick got the consolation prize of being named Commerce secretary, a far less influential post that primarily involves being a cheerleader for American companies at home and abroad. Lutnick’s new gig may be further hobbled by claims that he “made a lot of enemies” within Trump’s inner circle during the Treasury dust-up.

Cantor buying into Tether (literally)

Lutnick’s Cantor Fitzgerald is the (alleged) custodian of the nearly $100 billion in U.S. Treasury bills that (allegedly) belong to Tether, the issuer of the USDT stablecoin. However, Lutnick has to date offered only verbal assurances that Tether has sufficient reserves backing its $133 billion in issued USDT, which isn’t much better than Tether’s quarterly ‘attestations’ to that claimed reality.

Over the weekend, the Wall Street Journal dropped a few bombshells regarding the Lutnick-Tether bromance, including the claim that Cantor earns “tens of millions of dollars of fees each year” for managing Tether’s T-bills.

The report also claimed that Cantor “struck a deal to invest in” Tether sometime over the past year, giving Cantor “about a 5% ownership interest” in the world’s largest stablecoin by market cap. The WSJ reported that Lutnick reportedly ‘personally negotiated’ the investment and that such investments in clients weren’t ‘common practice’ for Cantor.

This 5% stake “was valued by Cantor at as much as $600 million,” which would value all of Tether at only around $12 billion. This seems surprisingly low given the $7.7 billion in ‘profits’ that Tether claims to have generated in just the first nine months of 2024. Tether is routinely promoted as a more profitable company on a per-employee basis than Wall Street titans like Goldman Sachs (NASDAQ: GS) or Morgan Stanley (NASDAQ: MS).

When Lutnick was named to the Commerce post, he issued a statement saying he would “step down from my positions” at financial firms, including Cantor. Lutnick also said he “intend[s] to divest my interest in these companies to comply with U.S. government ethics rules.”

Tether claims the Lutnick fix is in

The WSJ reported that Lutnick “restricted the number of [Cantor] employees who had contact with Tether to a handful of top executives … He often handled the relationship himself, flying by private jet to meet [Tether CFO/largest shareholder Giancarlo] Devasini.”

Devasini was almost certainly reluctant to travel to New York to meet Lutnick given widely reported rumors that there are unsealed indictments against Tether and its executives waiting at U.S. customs.

The WSJ quoted unidentified business associates of Devasini’s who claimed the Tether CEO “said privately earlier this year that Lutnick will use his political clout to try to defuse threats against Tether.”

Those threats aren’t limited to those rumored indictments for facilitating money movement on behalf of drug traffickers and terrorists. There’s also stablecoin legislation currently before Congress that explicitly favors Tether’s closest rival, USDC-issuer Circle, as well as an outside chance that Tether’s T-bills could be seized from Cantor in the event charges are filed.

On November 24, Bloomberg reported that Lutnick would delegate responsibility for maintaining the Tether relationship to Cantor colleagues, possibly including his son Brandon. The junior Lutnick is no Tether neophyte, having interned at the stablecoin’s Swiss offices.

Bloomberg also reported that Lutnick will look to Tether to provide at least some of the initial $2 billion that Cantor intends to support its BTC-as-collateral lending program. In reality, this funding may have already been obtained, given that the ‘secured loan’ category in Tether’s reserves jumped by $2 billion around the time that Cantor first announced its BTC loan plans in July.

As this article was being finished, Trump announced plans to impose 25% tariffs on Canada and Mexico on his first day in office due to their “ridiculous Open Borders.” The tariffs would remain in place “until such time as Drugs, in particular Fentanyl,” stop coming over the borders. Trump also slammed China for “the massive amounts of drugs, in particular Fentanyl, being sent into the United States.”

We pause now to recall reports that Mexican drug cartels buy fentanyl precursors from Chinese manufacturers and “always use USDT or [BTC] to pay.”

Your move, Howard…

You’ve already tried the crypto Rasputins, so…

While Trump has officially named all his prospective cabinet members, it’s still a guessing game about who will head up the non-departmental role of ‘crypto czar.’ Bloomberg reported that the White House was mulling designating such a point person on all things’ crypto.’ While the scope of his/her responsibilities remains unclear, the individual would reportedly serve as a bridge between the industry, Congress, and the White House.

Ex-CFTC Chair Chris Giancarlo has reportedly told officials he’d be interested in the ‘czar’ post. Other possible candidates include David Bailey, who ran this summer’s BTC conference in Nashville, where Trump gave a speech.

Brian Morgenstern of block reward mining outfit Riot Platforms (NASDAQ: RIOT) is also said to be in the running, while Brian Brooks (ex-Coinbase/Binance.US) reportedly met with Trump at his Mar-a-Lago resort in Florida (although Brooks might end up getting Gensler’s old SEC job).

Trump reportedly discussed the czar concept with Coinbase CEO Brian Armstrong last week. These reports didn’t specify whether Armstrong was being considered for the role, although this seems unlikely given Armstrong’s full-time job trying to lure in retail suckers to trade memecoins on his exchange.

However, given that Fox Business reported that the czar will be tasked with ‘creating a framework for the $180 billion stablecoin market,’ Armstrong might see the value in delegating some of his Coinbase responsibilities in order to focus on the bigger prize. Coinbase is a partner with Circle on the USDC stablecoin, which stands to benefit if Tether is officially unwelcome in America’s new freewheeling crypto market.

Meanwhile, Reuters reported that Trump is screening potential candidates to sit on the new ‘crypto advisory council,’ another promise he made during his Nashville speech. Representatives of Circle, Coinbase, the Kraken exchange, XRP-issuer Ripple Labs, and venture capital groups Paradigm and a16z are all reportedly vying for seats on the new council, the duties of which remain up in the air.

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