The crypto community and the U.S. Securities and Exchange Commission (SEC) have not always seen eye to eye, but there is one relationship that is likely to stand the test of time.
SEC Commissioner Hester Peirce, widely known as Crypto Mom, has been an ally to investors and entrepreneurs alike in the name of innovation and liberty.
Commissioner Peirce took some time to speak with BeInCrypto about the landmine that is the crypto regulatory landscape. She delves deep into the recent modernization of the infamous accredited investor definition, which has piqued the interest of cryptocurrency investors.
But the conversation didn’t stop there. Crypto Mom fielded questions ranging from decentralized finance (DeFi) to the heated race for a central bank digital currency (CBDC), all of which will unfold in a two-part series starting with this article.
Just last week, the securities regulator published a modernized definition of the accredited investor, shifting the focus from a person’s wealth to their investment acumen. Commissioner Peirce described the move as “a happy step forward,” explaining what she hopes to see happen from the change,
What we also did is to say if there are certain credentials you think make sense to count as an accredited investor, come and tell us about it. Part of what I hope is that we are recognizing the commitment it signals when people have, for example, taken courses on investing. If you show that kind of an interest, why shouldn’t you be allowed to invest in what you want and where? I’m hoping we see more of an opening from the open door we created with the rule making. It remains to be seen if people come in and do that.
Commissioner Peirce looks at the accredited investor idea through a broad liberty lens, saying,
We trust people in this country. One of the tenets of our country is that we trust you to make decisions for yourself. As a nation, we generally let you do what you want…and that is the basis for how we made a lot of progress. Letting people make their own decisions. That’s kind of a fundamental thing. Then a regulator comes in and says, ‘No, you can’t do something.’ We must have a good reason for saying no. When there’s liberty on one side and regulation on the other, we should make sure we have a good reason for saying no.
Time for Change
The crypto community knows all too well that the SEC has no problem saying no. It’s been three years since Cameron and Tyler Winklevoss submitted their first Bitcoin ETF application. There have been multiple submissions from the industry since, but a BTC ETF has yet to see the light of day.
One example is how we handled exchange traded products based on bitcoin. I think the approach we’ve taken has a tinge of merit regulation to it. But it’s certainly not restricted to crypto. We put out a rule proposal recently that would have included a merit-based approach for a particular kind of product unrelated to crypto. We do sometimes do that. It’s really tempting when you’re sitting in a regulator seat and seeing a lot of things going on, seeing people make decisions to say, ‘Wow, I would not advise that for someone’s portfolio.’ That isn’t our role. We don’t know people’s entire circumstances. And I think we have to make sure what we’re doing is getting good information to people so that they can make decisions based on circumstances they know better themselves…We also don’t know people’s risk tolerances. I think we have to have more humility.
Indeed, Commissioner Peirce warned that that the “accredited investor concept has caused the Commission to don a merit regulator’s cap,” a phenomenon that has seemingly spilled over into the cryptocurrency space.
In fact, she touted the crypto community’s persistence in its pursuit of liberty and for holding regulators accountable,
Crypto is interesting in this regard. People that would not otherwise have paid attention to an accredited investor definition paid a little more attention to it. I certainly appreciate the sentiment among a lot of people engaged in crypto asking questions about, ‘Why shouldn’t I be allowed to do this?’ It’s a healthy conversation to have, and I think the crypto community has helped us to have that conversation. It has forced us to have that conversation in a way that more refined and demure investors wouldn’t have pushed as much.
What Worries Her
That’s not to say, however, that there aren’t characteristics of crypto and investing in general that keep her up at night,
I worry about people getting taken advantage of and fraud. And that is certainly a part of my job that can be pretty stressful. It makes me sad when I see people doing terrible things to each other. But one message that is important to remember as a regulator is that no matter how good a regulation is, people are people and some people are going to do things that are bad. You as an investor or purchaser of crypto need to go in with your eyes wide open. The onus is on you. Be skeptical. When something looks too good to be true, you have to run in the other direction. You can’t assume that you have just found the best investment of all time that somehow defies all the parameters of investing and you’re going to get rich in a week.
Overall, moving the industry forward will require walking a tightrope of freedom and responsibility,
The SEC has guardrails in place. But ultimately, you’ve got to be alert. We would be in so much of a better place if people stopped assuming someone else has done their homework for them on something and started to ask really good questions before they spend their money somewhere.
Stay tuned for Part II of BIC’s interview with Commissioner Peirce, aka Crypto Mom, in which we discussed DeFi, central bank digital currencies, and more, coming soon.
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