Crypto regulation according to Peirce

One of the SEC’s most influential commissioners, Hester Peirce, is a big believer in cryptocurrency and hopes that despite some physiological failures of the market’s worst companies, there won’t be another season of rushing toward redundant crypto regulation.

As an early estimator that she is, Hester Peirce, commissioner of the U.S. Securities and Exchange Commission, is entirely optimistic that the crypto asset can establish and expand in the coming years but also hopes that the recent FTX affair will not push regulators toward a rush to buffer laws in the wake of the losses of scammed users. 

Peirce, who at the time of the statements was not yet aware that former FTX CEO Sam Bankman-Fried had been arrested in the Bahamas on a US warrant and that the Securities and Exchange Commission had not yet placed him under indictment for allegedly defrauding the company’s equity investors, believes that the world of digital currencies must inevitably go through these ugly chapters of financial history to evolve. 

The US Department of Justice on Monday night filed charges against Sam Bankman-Fried for conspiracy, wire fraud and money laundering, moreover, the CFTC plans to file suit for breaking the Commodities Act. 

According to the state commissioner, the cryptocurrency world remains too anchored in trading instead of expanding the potential it recognizes it has. 

For Peirce, this asset feels isolated from a resilient and non-inclusive financial world that makes it feel like an isolated entity:

“I see these things differently than some of my colleagues did.”

The importance of crypto regulation at a time of complete uncertainty

While Peirce is pro-crypto, Gary Gensler, chairman of the SEC has long been a vigilant eye on this asset, being always ready to contain it even through the much-feared rush to crypto regulation. 

According to Gensler, most digital currencies are to be equated with securities and therefore must be registered with the Securities and Exchange Commission. The president went even further, calling the cryptocurrency world a Wild West. 

The contrast between the two SEC figures also reverberates within the judiciary equally divided between libertarians and right-wingers:

“I’m more supportive of people’s ability to try things and experience things, and I think there’s been a lot of interesting experimentation in the crypto space, and I expect there will be a lot more in the next few years.”

Said the SEC commissioner. 

Peirce was proposed for the position as early as 2016 under Barack Obama, however, the US Senate did not appoint her as SEC commissioner until 2017. 

The position was factually filled by the state official only in 2018 and will expire in 2025, the fact that in all this time the cryptocurrency world has not evolved as Peirce would have hoped is by her own statement frustrating. 

Since 2012, namely when she said she began studying Bitcoin, the commissioner has fallen in love with this world and intends, to the best of her ability, to bring the SEC closer to this asset and if possible make it opt for a more open attitude to new innovative financial products in general. 

“I want to keep the doors open to innovation, to make sure the financial sector is not dominated by a few large companies to the exclusion of everyone else. Because there are a lot of people with big ideas and I think it’s great that people are challenging the way we’ve done things.”

The case of FTX for Hester Peirce is just the latest black swan that the crypto world has stumbled upon, but it is by no means the entire cryptocurrency world. 

Alameda Research, another company in which Sam Bankman-Fried was involved, had billions of illiquid FTT (the FTX token) on its books and that was the core of the problem. 

When Changpeng Zhao, CEO of Binance made it known that FTX’s hedges were not as strong, users triggered a series of massive withdrawals that led the company to halt operations in the following days. 

Before a desperate request for help from Binance, first granted and then rejected, FTX met its fate by filing for bankruptcy and entering into Chapter 11, but this should not stop the development of the industry. 

“When I talk to people, I remind people, one: that cryptography is not about centralized entities; two: that cryptocurrency is not even about trading. While there has been a lot of emphasis on trading in recent years, that is not the core of what cryptocurrency is all about. And if it’s the core, it probably isn’t living up to its potential. And three: it’s still early days, so we have more to see.”

The hope on the part of the SEC commissioner is that we will not see a legislative push that will overly constrain the cryptocurrency world as happened back after the 2008 global financial crisis.

Following the liquidity crisis of 2007-2008, the Dodd-Frank Wall Street Reform and Consumer Protection Act were enacted, which then led to the enactment of the Consumer Financial Protection Bureau, the establishment of the Financial Stability Oversight Council and the Volcker Rule to filter out investments deemed too risky. 

“I think we should all be looking for regulatory frameworks developed in the context of enforcement action, because it is a very attractive thing for regulators to do it and it excludes everyone else from the process. I urge people: the scope of securities laws is very wide and if you have any doubts, even if you have no doubts, it is good to think about calling a lawyer.”