SEC Commissioner Hester M. Peirce expressed concern over the United States’ conflicting regulatory approach to cryptocurrency, stating that U.S. regulators are sending “mixed messages” to entrepreneurs. She encouraged the SEC to be less conservative in the approval process for crypto-exchange-traded products.
In a speech before blockchain entrepreneurs in Switzerland, Ms. Peirce stated that the U.S. regulatory environment likely is not giving crypto entrepreneurs a “welcoming impression.” According to Ms. Peirce, the U.S.’s “diffused financial regulatory system” leaves entrepreneurs unclear about which laws apply to their projects. Additionally, Ms. Peirce noted that regulators are not uniform in their approach to cryptocurrencies. For example, while the CFTC has approved crypto-derivatives markets, the SEC has not approved the application of any exchange-traded products based on cryptocurrencies or crypto-derivatives, she said.
In criticizing U.S. regulators’ “mixed messages,” Ms. Peirce also addressed the SEC’s recent hesitancy in approving crypto-exchange-traded products. Ms. Peirce encouraged the SEC to empower investors to make decisions about whether or not to invest in these products. Ms. Peirce urged the SEC to be more transparent, and to better explain the agency’s decision-making process for exchange-traded crypto-products.
Lofchie Comment: No doubt the SEC believes that crypto-investments are very risky and that they are saving investors, particularly retail investors, from making bad investments. If SEC Commissioners believe that the public offering of crypto-securities constitutes an “emergency” that justifies “aggressive” regulatory action, then, at a minimum, while the SEC stalls exchange-traded crypto products, it should seek legislation endorsing such authority. Presumably, if the authority were granted, it would be subject to limits and to procedural conditions, including the transparency sought by Commissioner Pierce. In the absence of such a Congressional grant of authority, the SEC should not seek to exceed its legislated powers. It is worth noting that the advantage of allowing public trading of crypto-securities is that it would facilitate short sellers coming in, which should serve to dampen prices (assuming that the short sellers agree with the SEC’s skepticism on valuations).