SEC Commissioner Hester Peirce is confident that cryptocurrency assets can be fit into the American securities law framework that was established nearly 100 years ago, pointing out it was designed to accommodate things that didn’t exist at the time.
Speaking at the Journal of Corporation Law’s “20/20 Vision: Blockchain & the Future of Law Symposium,” Peirce—also known as “Crypto Mom”—said the principles-based “definition of what a security is has allowed the definition to work over time.”
Still, one of the problems the Securities and Exchange Commission has with regulating cryptocurrencies under the three-part Howey test is that new varieties are emerging all the time, she said.
“You can’t slap a label on tokens and say they are all securities because there are a lot of differences,” she contended.
Resolving that uncertainty is going to become more urgent as investors and companies in the traditional financial services system are becoming more comfortable with digital assets, said Peirce. Just this week, mainstream investors Stone Ridge and Square followed the example of MicroStrategy, which has poured $425 million into bitcoin recently. Stone Ridge bought $115 million in BTC, while Square, owned by Twitter-founder Jack Dorsey, purchased $50 million.
She did praise the way states like Wyoming have been clearing hurdles and breaking ground for the SEC by experimenting with regulatory regimes.
But more broadly, Peirce said she is hopeful that the current system’s deficits can be worked out in a bipartisan manner after the coming election.
Peirce added: “We can work together and build things useful for everyone.”
Uncertainty rules
One concern that the agency has with the regulation of cryptocurrency assets is that while promoters stress the advantages they bring by eliminating intermediaries, securities regulators have long worked with intermediaries in functions such as anti-money-laundering (AML) and are comfortable with them.
That’s particularly true for decentralized cryptocurrency exchanges which—in theory—have no centralized controllers for regulators to regulate, she said.
Peirce also pointed to stablecoins as an emerging problem, predicting that it’s going to be a difficult hill to climb to get global financial regulators to agree on how to oversee them.
Still, Peirce said the current system, in which companies and promoters trying to do the right thing when developing crypto products and services don’t know how to be in compliance with securities laws or even what agency oversees their tokens, is not acceptable.
Unfortunately, she added, “this is a reality living in our complicated regulatory society.”
One problem to be overcome, she contended, is that people are becoming fixated by the marketing language used by crypto promoters.
“You can’t take the marketing language and tell if it is a security,” said Peirce.
She noted there are lots of things that are clearly not securities that vendors try to sell by enticing purchasers with the lure that they will gain value over time.
As an example, she pointed to makers of fancy watches who promote them as heirlooms—with the implication family members could benefit from a rise in the value of the timepieces over time.
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