Cryptocurrency has become a divisive issue in Washington, with the Securities and Exchange Commission at the center. The SEC recently told major crypto exchange Coinbase Global that it is likely to sue the company over several business practices.
Regulators are also enforcing laws against other crypto companies and celebrities who dump tokens. However, there is no consensus on how the industry should be regulated and whether the SEC's "regulation by enforcement" approach works. With that in mind , Barron met with SEC Commissioner Hester Pierce. One of two GOP-appointed commissioners, Pierce, 53, has been called the "mother of crypto" for her pro-industry views. She was also named one of Barron's 100 Most Powerful Women in US Finance in 2023.
Pearce, who has been in office for two years, discussed a range of issues, including how he sees his role as commissioner and whether the cryptocurrency market needs more regulation. Below is an edited version of the conversation.
This is an important position and any decision you make will be criticized. What do you like about work?
I love the opportunity to influence the capital market, which is a very powerful engine of prosperity in our country, as well as its ability to change people's lives. Anyone with an idea to start a business can go into the capital market and get funds, then build generational wealth, pass it on to the next generation, and pass it on to other entrepreneurs. It is a privilege to participate in the attempt to establish the right rules in this capital market.
In December, the Securities and Exchange Commission made several proposals that met with resistance from Wall Street. The offering requires that virtually all retail stock orders be placed at auction and that the broker demonstrate optimal execution of clients' trades. The Securities and Exchange Commission (SEC) has also proposed lower trading volumes and increased entry fees. Do you think small investors are being taken advantage of?
It's a proposal and we're taking public input, so I'm looking forward to hearing what the public has to say. I really don't support some of these suggestions. I think the private equity markets are better than ever. they are perfect NO Is it possible to make incremental changes? Yes! But in general, if a retail investor wants to buy or sell stocks, they can do so quickly and with very low fees...at prices you see in the market, and maybe even better.
The proposed changes are dramatic enough to inform brokers that every retail order must follow this particular path. This is something that no government has done before, and I don't think we should be experimenting with markets unless there's a good reason to do so. I hope there will be an intensive dialogue, even in writing, so that we really think before we act.
After the FTX crash and the collapse of the $2 trillion cryptocurrency market, do you think the industry has reached a point where its survival depends on a strong regulatory framework? Many investors have lost money due to crypto scams and bankruptcies.
I don't think the survival of crypto depends on the regulatory framework, but it would be better for everyone if we knew exactly what regulatory parameters a cryptocurrency could operate under, because then people would spend less time thinking: “What rules? ? They will know and be able to think about building what they are trying to build. We all spend a lot of time thinking about the problems that we and Congress can solve.
We want to protect our customers, whether they are investors or consumers, and we want to protect market stability. What is the best way to do this? The SEC can play a role in this matter. We managed to bring a few cases of fraud to the crypto space. This is the most important thing that we have to do.
Creating a regulatory framework that takes into account the challenges and opportunities associated with technology would be a major development. A regulatory framework for cryptocurrencies has recently been introduced in Europe. It's too early to tell if they're good or not, and we might do it differently in the US, but we have to think about what kind of structure makes sense.
SEC Chairman Gary Gensler recently stated that “everything but Bitcoin ” in cryptocurrencies is a security and should be regulated because there is an entity that supports it. Do you agree?
The definition of "security" is very broad and the facts and circumstances of the case must be considered when deciding whether to use the securities provision. We have not been very disciplined in applying securities rules to crypto. We need to create a structure where people can work. Whether the token is a security or not, people will be able to work. If you say they are all securities, how do you enforce the law so that these crypto projects can continue to operate?
Do you think the SEC's "regulation through enforcement" approach is working given the massive frauds and bankruptcies we're seeing in the crypto industry? Do exchanges like Coinbase need to register with the SEC?
I don't think law enforcement is the right approach to regulate the area. When it comes to fraud, we often play a role and have handled many cases in this area. But if we try to get instructions from law enforcement, we estimate it will take about 400 years at this rate, so that doesn't seem like the best approach. What should we do as a society, and that's where Congress comes in, think about it? “We believe that cryptocurrency exchanges should have federal regulators. If so, who should be the federal regulator? Should it be the SEC? Should it be someone else?
We believe there should be a system to detect when someone offers tokens. If it should be like this, then who should do it? Do we think a stablecoin should have a regulator? Should it be the bank regulator or the SEC or another regulator?
Do you have a list of top priorities for the next 12 months?
Gary Gensler, as chairman, sets the agency's agenda in terms of rulemaking, and he sets a very active agenda, so one of my priorities is to think about all the agenda items and see if I can try to push them forward. better. direction or not? . I want us to better regulate cryptocurrencies, and for that we need to have some public roundtables where we get people involved, preferably with the [Commodity Futures Trading Commission] to start a discussion. I want to see it next year.
And then I'll devote some of our focus to helping entrepreneurs find the capital they need to grow their businesses. It's a part of our mission that we've been neglecting lately, and I want us to spend more time thinking, "What can we do to make it easier for the founders of these companies to raise money?"
Silvergate Capital, a major lender to crypto companies, went out of business after the collapse of FTX. Do you think there is a need for a rule requiring clients or crypto brokers to split their assets, or more specific custody rules?
It's good to think about custody rules from the start because people need to understand that if something happens to the entity that holds their cryptocurrency, what will happen to their cryptocurrency? Is it separate to them or is it part of the bankruptcy estate and they just have to line up with other creditors?
We can certainly think better about how the companies we regulate should deal with cryptocurrencies. We recently published a proposal for custody of investment advisers. This is an important rule that covers a lot of different things, but one of them has to do with cryptographic compliance, so it will be interesting to see what people have to say about it in general and about this rule.
There have been reports that Binance may have acted inappropriately to create the impression that Binance.US is a separate entity from Binance. Does this mean the industry needs more regulation?
Without talking about any particular structure or organization, but if you have centralized structures, it's fair to ask, "What regulatory structure do we want around them?" Part of the theory behind cryptography is that a centralized entity bears its own risks... and blockchain technology allows for a secure network where you don't really need to trust anyone. They trust technology and everything is open for you to see.
Where technology plays the same role as regulation, this may be an area where you don't need to apply the same regulatory framework.
Have you ever thought about your long-term future and the continuation of your career?
There is so much to consider in this job that I don't know what to do next except hope that one day I will have a hive. It becomes my hobby.
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