Cryptocurrency regulation undercuts freedom

Crypto Mom: Cryptocurrency regulation undercuts freedom

SEC Commissioner Hester Peirce told the libertarian Federalist Society that by cutting out financial intermediaries, crypto is a powerful force for personal liberty

SEC Commissioner Hester “Crypto Mom” Peirce warned cryptocurrency regulation could undercut personal liberty in a Dec. 10 speech to the libertarian Federalist Society.

The Republican Securities and Exchange Commissions appointee praised crypto for making the principle that people have a fundamental right to voluntarily to engage in mutually beneficial transactions with one another more powerful than ever before in history.

The ability to enter into transactions with others across the world without an intermediary shows crypto’s inherent value in personal liberty, she asserted. Peirce added:

“Regulators, however, are used to dealing with intermediaries, because they are easy to grab hold of and regulate. So crypto poses new challenges [and] those challenges are only growing as crypto evolves.”

She said the SEC’s challenges in dealing with necessary cryptocurrency regulation include “wrestling with issues such as whether digital assets are securities, how registered entities can custody digital assets in compliance with our rules, and whether regulated investment products holding bitcoin can meet our standards.”

Another such area is the explosive growth of “decentralized finance, or ‘DeFi,’ applications designed to displace regulated entities such as exchanges and broker-dealers.” 

DeFi, Peirce warned, “will pose thorny questions and decisions for us in the coming years.”

That said, calls for clear regulation are growing from inside the cryptocurrency industry, as well as other regulators and international financial organizations.

The right to get rich (or go broke)

Noting that cryptocurrency and the blockchain technology underlying it is now gaining traction inside the legacy financial system as well as outside of it, Peirce argued that if the SEC decides to “steamroll the technology’s liberty-enhancing features under the weight of regulation, we would lose a lot of the power of the new technology to afford opportunities to people whose autonomy has previously been curbed by, for example, limited access to the traditional financial system, geographic location, social standing, or subjection to a repressive government.”

Remittances sent home to poor countries by migrant works are the biggest example of this benefit, and one that is being focused on by crypto companies ranging from Ripple to Facebook’s Diem stablecoin project—known as Libra until this week.

Peirce also singled out the SEC’s “accredited investor” standards as an attack on personal liberty.

These standards—essentially be an institutional investor or rich—have had a big impact on the cryptocurrency industry ever since the SEC’s initial coin offering (ICO) crackdown limited the ability of smaller retail investors to get in on token launches.

Calling recent changes allowing professionals holding certain SEC licenses to be considered accredited is a “small step” that reflects “an acknowledged need to look beyond wealth and income because they are imperfect measures of sophistication,” she said. 

As a stopgap, she suggested that a “willingness to measure sophistication more creatively eventually may open additional channels—such as getting a degree, taking relevant classes, or passing a test—to get into the accredited investor pool.” That said, Peirce added:

“The presumption that people need to entreat a regulator for permission to invest still offends principles of personal liberty, which allow people both to earn and spend money as they see fit.”

Central planning goes green

Calling cryptocurrency regulation an “area in which questions about the intersection between personal liberty and regulation loom large,” Peirce warned while crypto is the opposite of central planning, central planning is making a comeback. 

“The disguise of the day is climate policy,” she said. “At first blush, central planning measures undertaken to protect the climate do not raise the same kind of fears that other types of central planning would. Regulatory fiat is no substitute for the valuable role that financial markets play in directing capital to productive uses, including companies developing solutions for mitigating climate change.”

While she did not connect it directly to crypto, more than a few industry insiders are predicting that with the Biden Administration refocusing public policy on the environment, the staggering power consumption—and attendant pollution—required for Bitcoin’s proof of work consensus mechanism will face bigger challenges than just cost.

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Ted Knutson is a veteran Washington financial reporter. Knutson does not own any cryptocurrencies.