By Kathy Chu, TruthDAO
Regulators need to streamline rules of the road for the $3 trillion cryptocurrency industry or risk losing innovation that might benefit consumers far beyond the crypto world, U.S. Securities and Exchange Commissioner Hester M. Peirce warned Friday.
Peirce — who appeared on TruthDAO's "Crypto DeFined" show on Fireside – said regulators should not impose rules that are so burdensome that innovators don’t want to experiment with promising new products or technologies for fear of running afoul of U.S. laws.
Blockchain technology — a hallmark of the crypto world — records transactions on a distributed ledger that is available for public inspection. Applied responsibly, blockchain also holds promise for the regulated markets, according to Peirce. How: by reducing the concentration of power in the financial industry, and by forcing more transparency as it concerns disclosure of information to investors.
"I'm an advocate of trying new things," she said, later adding: “I wonder how much innovation we've missed out on already?"
In March, President Joseph Biden signed a sweeping executive order on cryptocurrencies, tasking federal agencies with studying potential regulation of the crypto industry, as well as the possibility of a government-issued central bank digital dollar. In making the request, Biden cited the rapid adoption of digital assets, including cryptocurrencies like bitcoin. He also noted their impressive market cap, which eclipsed $3 trillion in November 2021, up from $15 billion just five years earlier.
The SEC is chaired by Democrat Gary Gensler, who was nominated to the commission last year by Biden. Peirce, who is known for her contrarian views, is currently the lone Republican at the SEC. Commissioner Elad Roisman – the only other Republican – recently resigned. Both assumed office in 2018 under then President Donald Trump.
Within the crypto community, Peirce is practically a folk hero. She won the hearts of many when she openly criticized the SEC’s 2018 decision to reject what would have been the first spot bitcoin exchange-traded fund. The fund was proposed by Cameron and Tyler Winklevoss, identical twins known for their battles with Mark Zuckerberg over the social network that became Facebook.
Regulators and consumer advocacy groups are concerned that unwitting investors are getting burned by the crypto markets. The industry has struggled with copyright infringement and market manipulation, including faked demand and inflated prices.
Market manipulation concerns are one reason the SEC has declined to approve spot bitcoin exchange-traded funds, or ETFs - including the version proposed by the Winklevoss twins. A bitcoin ETF would give investors exposure to bitcoin without buying it directly.
Sangita Gazi, an academic who has researched cryptocurrency manipulation and regulation, asked Peirce during Friday’s livestream interview how regulators can create an environment that fosters responsible innovation while protecting consumers.
Peirce said investor protection is at the forefront of regulators’ agenda, but questioned whether the term “responsible” should be applied to innovation. Innovation can take many forms, according to Peirce, and a technology that is meant for one purpose can evolve into being used for another purpose.
Peirce has urged regulators to think about whether the transparency of the blockchain makes it possible to regulate with a “lighter hand so that people can be more free in their financial lives,” as Peirce put it in her remarks to the SEC’s Investor Advisory Committee in December.
She also thinks it’s important for regulators to further clarify when, and under what circumstances, crypto products will be considered securities. The SEC has partly relied on enforcement actions to make its views known.
In February, the SEC charged crypto lender BlockFi Lending LLC with not registering its retail product as a security. Pierce criticized the $100 million in penalties and fines that followed as “disproportionate.”
In addition to taking the agency to task for the whopping fine, Peirce raised a larger question.
“Is the approach we are taking with crypto lending the best way to protect crypto lending customers?” Peirce said in a statement at the time. “I do not think it is, so I respectfully dissent.”
Watch the full interview here
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