Wendy, Foresight News
“On my first day in office, I would immediately fire Gensler.” — This was the bold promise made by former President Donald Trump, a candidate in the U.S. presidential election, to the cryptocurrency community at the Bitcoin 2024 conference.
Gary Gensler, the current Chairman of the U.S. Securities and Exchange Commission (SEC), has undergone a significant reputation shift within the crypto community. Once seen as a beacon of hope, Gensler is now regarded as a major antagonist. According to Brian Armstrong, founder of Coinbase, Gensler has morphed from a blockchain course instructor at MIT into the crypto community’s top “sniper” in just a few years—a transformation largely attributed to his political role.
Amidst the ongoing debate over who should regulate cryptocurrencies, the SEC, under Gensler’s leadership, has emerged as the most active regulatory body in the crypto space.
Statistics from Cornerstone Research reveal that since the SEC initiated its first crypto-related enforcement action in 2013, the agency has filed a total of 173 enforcement actions by 2023. By the end of 2023, the SEC had imposed approximately $2.89 billion in fines on digital asset market participants. The number of crypto-related enforcement actions by the SEC reached an all-time high in 2023, marking a 50% increase from 2022.
The SEC’s website heralds this as a “productive” year.
Despite the SEC’s aggressive stance towards leading crypto companies, it is not without its proponents of crypto within the agency. Among the five SEC commissioners, including Gensler, Hester M. Peirce stands out as a prominent advocate, earning her the moniker “Crypto Mom” within the industry.
Hester M. Peirce, with a bachelor’s degree in economics from Case Western Reserve University and a J.D. from Yale Law School, was nominated to the SEC by President Trump in 2017 and officially sworn in as a commissioner in January 2018.
In an interview with Foresight News, Peirce admitted that her views on the crypto industry have evolved since joining the SEC. However, she remains frustrated with the lack of progress in U.S. crypto regulation.
On one hand, Peirce is dismayed by the necessity for many crypto entrepreneurs to establish offshore entities or refuse to serve U.S. customers—outcomes she finds undesirable. On the other hand, she believes that the high technological barriers and innovative talent in the crypto sector warrant more constructive regulatory progress.
The following is an excerpt from the interview.
Foresight News: You are widely regarded as a very pro-crypto commissioner. There is even a nickname “Crypto Mom” due to your very supportive stance on cryptocurrencies. How has your perspective on crypto regulations evolved since you joined the SEC, and what drives your continued advocacy for this sector?
Hester M. Peirce: First, I want to give my disclaimer that my views are my own as a commissioner, not necessarily those of the SEC or my fellow commissioners.
My views have evolved since joining in January 2018. Initially, I didn’t think we needed specific regulatory changes for crypto. But as I’ve learned more about what’s happening in crypto and the nature of the entities involved – often small teams of developers – it became clear we needed more clarity on the SEC’s role. We need to offer ways for projects to meet our statutory objectives while becoming commercially viable, which may require exemptive relief from some rules.
I’ve been frustrated by our lack of progress, which motivates me to continue advocating for better engagement with the crypto world. I want to see a path forward where the SEC isn’t just the “Securities and Enforcement Commission”, but where crypto projects feel they can actually come talk to us and register when necessary.
Foresight News: What kind of “progress” do you really want to see?
Hester M. Peirce: I’d like to see us get to a place where people building with crypto and blockchain technologies can concentrate on their projects. They should understand the regulatory framework well enough that they’re not spending all their time thinking about it or designing around legal uncertainty.
Good regulation allows innovators to focus on building within clear rules, rather than constantly trying to understand the ruleset they’re working in.
Foresight News: Regarding crypto regulation, how do commissioners balance different views? Do you often try to persuade others, or when facing specific policy disagreements, how do you resolve them?
Hester M. Peirce: The SEC is uniquely structured as a politically balanced commission, which naturally leads to disagreements. However, this structure helps maintain policy continuity over time. We discuss and debate issues, and many aren’t particularly controversial – we all want well-functioning capital markets. Sometimes we convince each other to change views. Despite my frustration with our progress, I’m optimistic we can change. We could decide tomorrow to stop letting enforcement always lead in crypto and instead work through these hard issues at the commission level, bringing others into the conversation.
Foresight News: What are the main challenges the SEC faces in regulating cryptocurrencies? What are the current regulatory priorities in this space? Looking ahead, what do you see as the most pressing challenges? Are there any specific areas where you believe the commission needs to adapt its approach?
Hester M. Peirce: We face several challenges. First, we tend to view crypto as entirely financial, but it isn’t. Many applications, like decentralized physical infrastructure, may not be primarily financial. We need to be careful not to impose financial regulations where inappropriate.
Second, the technology is difficult to understand and rapidly changing. It requires effort to sort through the hype and understand the underlying innovations, which can be challenging for regulators of large markets like ours.
Third, bandwidth is an issue. We have many other items on our agenda, so finding time to properly address crypto can be challenging.
Lastly, there’s a challenge we’ve partly created ourselves. We know there’s bad activity in crypto, and if we had done a better job regulating, it would be easier to distinguish good actors from bad. This affects how we direct our limited enforcement resources.
Foresight News: In your recent speeches, you emphasize the need for regulatory humility. Could you elaborate on how this concept could be applied specifically to SEC’s approach to crypto regulation?
Hester M. Peirce: Regulatory humility is crucial in everything we do. As I’ve gotten older, I’ve become an even stronger believer in the depth and diversity of talent out there in the world. As a regulator, I have my limited set of knowledge, so why would I want to cut myself off from others with different experiences and education?
Applying this to crypto means we need to have public conversations about the right regulatory approach, allowing diverse participation. We shouldn’t be doing this primarily through enforcement settlement rooms, where the leverage is unbalanced and many voices are excluded.
A humble approach would enable us to regulate better in this area and many others. It’s something we all have to work on – remembering that we’re only seeing our little sliver of the world and always looking for other points of view.
Foresight News: The approval of Bitcoin ETFs and Ethereum ETFs is a significant development. From an SEC perspective, how do you see this impacting the broader crypto market and the Commission’s regulatory approach going forward?
Hester M. Peirce: These approvals are milestones, and it’s wonderful that people now have the opportunity to buy these products if they believe they fit well in their portfolios. However, people shouldn’t read too much into this. A court told us our failure to approve the Bitcoin exchange-traded product was arbitrary and capricious. When a court tells us something like that, we don’t have many options but to apply the same reasoning we’ve applied to comparable products in the past. The backdrop of the court case is certainly relevant to assessing how meaningful these developments are in terms of the bigger picture of what the SEC is doing on crypto.
Foresight News: There is still ongoing debate about the classification of cryptocurrencies as securities or commodities. How do you see this debate evolving within the SEC, especially in light of recent court decisions and regulatory actions?
Hester M. Peirce: I think we haven’t approached this question with the legal rigor it requires. We need to apply legal rigor, but also think about what we’re trying to accomplish. One thing driving a lot of SEC crypto policy is that we’re a disclosure regulator. We want people to get disclosure about things they’re buying, which isn’t a bad objective in this space.
We need to have conversations about our objectives and then figure out the best way to achieve them. We need to ask questions like: What are similar assets? How should crypto assets be treated in comparison to other similar assets? It’s this kind of legal conversation we need to have.
Foresight News: Many crypto project founders, even U.S. citizens, choose to incorporate offshore or not serve U.S. customers due to regulatory concerns. How does the SEC view this trend, and what steps do you think we could take to make the U.S. more competitive in attracting crypto innovations?
Hester M. Peirce: Personally, I want the U.S. to be the place where people from all over the world come to build things. We have such a history of being a place where entrepreneurs and innovators like to meet and build things together. I want it to be the same for crypto innovation.
There has been less concern about things moving overseas because there’s been skepticism about real innovation happening in the crypto space. But ultimately, our job is to do the best job we can regulating, and then people make their decisions based on their own criteria.
I hope we can get to a place where we’re telling people the SEC is open to innovators from wherever they might hail. We want people to come here and build things here, just as people come here from all over the world to invest in our capital markets because they’re such good markets. I want the quality of our markets to be the reason people decide to be here.
Foresight News: While mainland China has taken a strict stance on cryptocurrencies, Hong Kong has recently adopted a more open approach to crypto regulations. From your perspective as an SEC commissioner, how do you view the regulatory differences between the U.S. and key Asian markets like Singapore and Hong Kong? What insights or lessons, if any, do you think U.S. regulators could gain from observing these diverse regulatory approaches in Asia?
Hester M. Peirce: One thing we can do is learn from approaches that other places have taken. Japan has a long history of crypto regulation, for example. Singapore has taken a view that they’re really going to work on giving people the opportunity to experiment with the technology.
I would like to see more openness in the U.S. toward experimentation with the technology by traditional financial institutions as well as by new entrants. Recently, I put out a proposal for a micro innovation sandbox. Ideally, it would allow cross-border participation, involving multiple jurisdictions in these experiments. Even having something like that in the U.S. draws somewhat on the openness that other places like Singapore have had toward experimentation.
We have a lot to learn as we watch other jurisdictions wrestle with some of the same issues we’re wrestling with.
Foresight News: There’s a growing discussion about the so-called “election effect” on cryptocurrency regulation in the U.S., with some candidates even proposing a crypto reserve. How likely do you think significant changes in crypto regulation are to occur based on the election outcome? And if such changes do happen, what might they influence regulatory approaches in other jurisdictions globally?
Hester M. Peirce: I’m more focused on coming up with good ideas that will be on the shelf for whenever my agency is ready to take them up. We could decide tomorrow to take a different approach toward regulating crypto. So let’s have good ideas ready. That’s why I put out the Safe Harbor several years ago and the micro-innovation sandbox proposal recently.
I welcome input from other people on those ideas and on other ideas about how we can do a good job in regulating. In the U.S., Congress has expressed great interest in developing a legislative framework around crypto. That’s happening already; we saw a lot of activity on that this year. So we shouldn’t be waiting – we should be trying to work now on getting ideas up and running and moving as quickly as we can.
Foresight News: The crypto market has been heavily impacted by key persons on Twitter, like Elon Musk or Donald Trump. From a regulatory standpoint, how does the SEC view this phenomenon? Is there any consideration or discussions within the SEC about potentially addressing or regulating these kinds of market-moving statements on social media?
Hester M. Peirce: Without talking about any specific crypto asset or person, I’ll say that in traditional securities markets, we have rules around encouraging others to buy or not buy a security. There’s also common sense advice I always try to give people when they’re thinking about buying an asset: Do I understand this, or have I hired someone who does? How does this fit within my portfolio? Can I bear a loss if there is one? What’s the risk-reward balance? Why is this person recommending this to me, and what’s their benefit in doing so?
These are questions people need to ask regardless of the asset. Some assets may or may not be within our jurisdiction, so these questions are sometimes for us to answer and sometimes not. But regardless of jurisdiction, people should always make careful decisions about what to buy or not buy, thinking about whether they can afford to lose the money.
I’m a big believer in individual freedom and people’s right to make decisions about their own money. But with freedom comes responsibility. Be prepared to make well-founded decisions, or if you’d rather have someone else manage your money, there are professionals out there. We have databases where you can research these professionals to ensure you’re working with someone you can trust.
Foresight News: U.S. cryptocurrency exchanges like Coinbase are currently prohibited from offering services such as futures contracts and leveraged trading. In the foreseeable future, do you foresee any potential changes to these restrictions? And how does the SEC balance innovation in financial products with investor protection in the crypto space?
Hester M. Peirce: Let me address that last question because it’s an interesting one. Sometimes we think about innovation and investor protection as being in tension, but a key component of investor protection is ensuring that people have access to products and services they want, while trying to make sure they have the information they need to make good decisions.
I tend to say we shouldn’t stand in the way of products and services. We should really be in the business of helping people get the information they need. As for particular entities and what they can and can’t offer, these questions are very nuanced. You may be asking about products and services that aren’t even within the SEC’s purview. A lot of these questions turn on whether things are securities or not.
When you’re talking about futures products, we have an unusual structure in the U.S. where we’ve got the Commodity Futures Trading Commission as the futures regulator. So some of these questions are pretty nuanced, and I wouldn’t want to address them without understanding the particular facts and circumstances.