In a recent speech at the University of Missouri School of Law, U.S. Commissioner Hester Peirce (‘Crypto Mom’) admitted the SEC has a tendency to flee from anything to do with digital currencies.
We rightfully fault investors for jumping blindly at anything labeled crypto, but at times we seem to be equally impulsive in running away from anything labeled crypto.
Regulation Should Not Strangle Innovation
Peirce went on to suggest that the SEC should not rush into enforcing regulations. And that they owe it to investors to carry out their own due diligence when it comes to emerging fields.
We owe it to investors to be careful, but we also owe it to them not to define their investment universe with our preferences.
The day before her speech, she reinforced her position on Twitter:
I look forward to working with you @SECJackson to open the doors to innovation, but we're not a merit regulator issuing seals of approval, so let's encourage investors to do their own work to decide whether an investment is right for them: https://t.co/iMA7NUkLRp
— Hester Peirce (@HesterPeirce) February 7, 2019
Regulation has been slow in coming, particularly in the U.S. Many countries and regulators are still grappling to understand what it is they are regulating. But Peirce is of the opinion that may actually be a good thing. She stated:
Entrepreneurship and innovation do not have the happiest of relationships with regulation.
In defense of the SEC’s actions (or inactions) thus far, she suggested that if regulators were too fast to create laws, they could stifle innovation. Delay in providing a clear set of guidelines has, she argues, given many operators in the cryptocurrency industry space to develop organically.
She also hinted that regulation would need more time. In December 2018, she cautioned investors not to hold their breath on an SEC ruling on a Bitcoin ETF. She said they should not “live or die” on whether one was ever approved.
SEC Commissioner Hester Peirce on crypto ETF: "Don't hold your breath"
It could come tomorrow or in 20 years, she said.
"I do caution people to not live or die on when a crypto or bitcoin ETF gets approved."
— Frank Chaparro (@fintechfrank) December 5, 2018
Moreover, there are too many cases in which securities laws dating back to the 1930s simply do not apply to this area. The SEC may be able to “draw clearer lines” once there are more blockchain projects in the ecosystem.
Until then, the delay may actually give blockchain projects the freedom they need to work while the technology matures.
If Regulation Forces Projects ‘Unworkable’ Something Is Wrong
Peirce also commented on the lengthy process of regulating a new industry. And the fact that taking longer to regulate is better than hastily moving forward with rigid laws that could harm the industry.
She expressed her regret about how the enforcement of existing laws has led at least one project into cessation. Blockchain company Basis announced in December that it would shut down operations and return the $133 million raised to investors. This was due to the ‘impossibility’ of complying with securities regulations.
I am not going to comment on what I think about the merits of any particular project or how the securities laws apply to it, but my antennae will go up when apparently legitimate projects cannot proceed because our securities laws make them unworkable.
Peirce went on to stress that waiting and watching was a better tactic than over-regulating and stifling a nascent technology.
If we act appropriately, we can enable innovation on this new frontier to proceed without compromising the objectives of our securities laws.
She also reminded those companies seeking clearer guidelines not to be hasty nor underestimate “the gravity of the regulator’s task.”
In other words? Don’t expect much more clarity to come out of the SEC any time soon.
Crypto Mom Hester Peirce
Peirce became somewhat of an industry darling last year, dubbed ‘Crypto Mom’ after she publicly dissented against the SEC when they denied the Winklevoss’ Bitcoin ETF application.
She also said that she was trying to convince colleagues “to have a bit more of an open mind” around Bitcoin ETFs. This attitude has won her many supporters in the industry, thanking her for her openmindedness.
Thank you for your well reasoned, detailed, and thoughtful dissent in favor of a $BTC EFT approval.
— Woody Levin (@Woodrow1616) July 26, 2018