Two words that will always characterize Gary Gensler's SEC tenure

The big picture: At the heart of dispute between Gensler's SEC and the digital asset industry was the question of whether existing securities laws are sufficient to provide clear regulatory rules under which this relatively new industry can operate.

• Gensler, who resigned his post Monday just before Donald Trump took office, has said they are. The industry says they aren't.

The latest: The country's largest crypto company, Coinbase, had petitioned for updated rules, and a federal appeals court last week ordered the agency to revisit its decision to refuse to provide them.

• Though the court noted that, in general, it's expected to defer to agencies like the SEC — in this case it said the regulator's reasoning was so bad that it was forced to demand the agency take a second look.
• It called the SEC's decision "insufficiently reasoned, and thus arbitrary and capricious."

Context: "Abitrary and capricious" is a legal standard from the Administrative Procedure Act. It's a standard by which courts are meant to judge the reasonableness and fairness of agency decisions.

Between the lines: Gensler's strategy with regard to digital assets was to undermine the entire industry in the U.S. by going after its most important companies (rather than prioritizing its worst actors, which were typically much smaller operations).

• It sued Coinbase, a publicly traded company and the top cryptocurrency exchange in the U.S., alleging it operates an unregistered securities exchange.
• It sued Cumberland, one of the leading providers of liquidity in the space and a firm with a reputation for compliance, saying it operates as an unregistered dealer.
• Further, it had warned a top decentralized finance development firm and the top marketplace for non-fungible tokens of likely action.

Flashback: The recent arbitrary and capricious finding was not the first time a court labeled an SEC decision that way. It got the same ruling after it attempted to prevent Greyscale Investments from converting its bitcoin fund into an exchange traded product.

• That court loss led to a sweep of new bitcoin ETFs, which ultimately proved to be the most successful category launch in the history of such instruments.

That's not to say the SEC hasn't had wins. The agency has published a list of the many cases it has won in the space.

• The biggest among them is Binance, the top crypto exchange in the world. Its leader, Changpeng Zhao (CZ), pled guilty to criminal charges related to its neglect of anti-money laundering rules.
• But most of the other cases it notes were either obviously scams or otherwise questionable operations.

For example, it's no surprise it won against Do Kwon, founder of Terraform Labs, 2022's second worst disaster (after FTX).

• Nor does anyone in the industry regret the fact that token promoters like Ian Balina lost to the agency.

Zoom in: It's one thing to beat scammers and market manipulators, and another thing to prevail over firms that operate in good faith, attempting to build the infrastructure for a token economy.

Meanwhile, the agency has repeatedly lost when it counted. For example, in the case against Ripple Labs, it lost on the most important point: whether or not XRP on the secondary market is a security.

• However, the agency did win on the same issue in other cases, perhaps most notably against the YouTube competitor, LBRY, and in the Terraform case.
• The uncertainty there led to a procedural loss, as Coinbase won the argument to take the issue of secondary market transactions to the appeals court, against the SEC's wishes.

💭 Our thought bubble: It seems like the message went out at the SEC that wins against the crypto industry were a top priority, which led to ill-conceived sorties against firms in the space.

• One notorious such case, against DEBT Box, was so bad that it earned a rebuke from the court and led to multiple resignations. The agency ended up closing down the whole field office that brought the case.

What we're watching: In the final days of his time in power, Gensler's agency has been pumping out a flurry of settlements — including a second settlement with the former Digital Currency Group subsidiary Genesis — addressing all kinds of alleged misbehavior by the financial sector.

The bottom line: But it's going to be the critical ways in which Gensler's agency opposed technological change and lost, that his tenure will likely be remembered for.

Editor's note: This article was was updated to add detail on Genesis.