U.S. Securities and Exchange Commission Hester Peirce used her opportunity on stage at ETH Denver to continue her criticism of her own agency, expressing frustration about “regulation by enforcement” and criticizing the SEC for being slow to approve spot Bitcoin ETFs.
“The Grayscale case essentially gave us the option to approve a product that is traded on a Bitcoin exchange, and it is remarkable to me that it took a court to tell us that we had to do that,” Pierce said during a “sideline” conversation with CNBC’s McKinsey. Sigalus. “I started in 2018. That summer, we were offered the first exchange-traded product with Bitcoin as a commission. And I thought at the time, which was a long time ago, that we should have said yes to that.
What will the agency say to the now pending requests to offer Ethereum ETFs?
“I'm sure people here are interested to know what happens,” she admitted. “I'm going to use the attorney's answer and say it's under consideration by the SEC — and there's not much I can say about that.”
One of the many complaints the cryptocurrency industry has aimed at the SEC is that the agency is using enforcement actions rather than regulation, prosecuting cryptocurrency companies like Ripple, Coinbase, and Lbry. Pierce, who regularly speaks at cryptocurrency events and finds a sympathetic audience for her criticisms, criticized the SEC for acting after the fact rather than setting clear regulatory guidelines in advance.
“Some of the choices the SEC has made are very strange from the standpoint of people who favor regulation as a solution,” Pierce said. “Because when you push entities away from the United States, you are actually pushing them outside the control or scope of US regulatory agencies.”
Pearce again suggested that a common-sense approach would be better.
“If you really want to differentiate between bad behavior and good behavior, having clear rules for people who want to follow them is a much better approach than doing so and later parachuting in with enforcement,” she said.
Pierce said crypto enthusiasts and policymakers should work together to come up with ideas ready to go when SEC Chairman Gensler changes his views on cryptocurrencies.
“The idea of the token ‘safe harbour’ is that we get some basic disclosure, and then let’s give the projects time to get to that point of decentralization,” she explained. “Ideas that people are welcome to replicate and some have already done.”
In October 2021, US Representative Patrick McHenry introduced the Digital Token Clarity Act of 2021, which would create a so-called safe harbor that is in line with Pierce's own proposal and would give cryptocurrency startups up to three years to prove “network maturity” and become decentralized. To the point that the tokens associated with them no longer meet the definition of securities under federal law.
Bitcoin has gained some legitimacy in the eyes of the SEC because it is “sufficiently decentralized.”
While Pierce advocates for fair regulation of cryptocurrencies by the SEC, she has also emphasized the agency's important role in prosecuting cryptocurrency fraud.
“If you're talking about scammers who are stealing people's money, certainly I think we want to have someone out there going after those type of people,” she said. “But I still think it's better that we sit down and think about commonsense regulation in this area. This should be a conversation. It shouldn't be a one-sided conversation of 'Read the latest press release for our app.'
Pearce has warned investors who turn to regulators for help when they make a bad deal or decision.
“What drives me crazy is when people say, 'Government, stay out,' and then something bad happens, and then they say, 'Government, why didn't you protect me? Why didn't you tell me not to invest in this?'” Pierce said. “With freedom comes responsibility. “
Edited by Ryan Ozawa.
