By Wendy, Foresight News
Interviewee: Hester M. Peirce, Commissioner of the U.S. Securities and Exchange Commission
"I will fire Gensler immediately on my first day in office" - this was the promise made by former President Trump, a candidate for the US presidential election, to the crypto community at the Bitcoin 2024 conference.
Garry Gensler is the current chairman of the U.S. Securities and Exchange Commission, a person who has experienced a huge change in reputation in the crypto community, from being highly expected to facing severe criticism. In the view of Brian Armstrong, the founder of Coinbase, in just a few years, Gensler has transformed from the initiator of the blockchain course at the Massachusetts Institute of Technology to the number one "sniper" in the crypto community, all of which is due to his political identity.
At a time when there is no clear answer to the question of "who should regulate cryptocurrency", the U.S. Securities and Exchange Commission (SEC) where Gensler works has almost become the most active regulatory body in the crypto field.
Statistics provided by Cornerstone Research show that since the SEC filed its first cryptocurrency-related enforcement action in 2013, the agency has filed a total of 173 enforcement actions as of 2023. As of the end of 2023, the SEC has imposed fines totaling approximately $2.89 billion on digital asset market participants. In 2023, the total number of SEC crypto-related enforcement actions hit a record high, a sharp increase of 50% from 2022.
The SEC's official website called it a "fruitful" year.
Although the SEC has frequently "raised its gun" against leading companies in the crypto industry, as a "politically balanced" institution, there are also members who are friendly to crypto. Among the five SEC members, including Gensler, Hester M. Peirce is one of the most outspoken ones, which even earned her the title of "crypto mom" within the industry.
Hester M. Peirce holds a bachelor's degree in economics from Case Western Reserve University and a doctorate from Yale Law School. She was nominated by then-President Trump in 2017 and was officially sworn in as a commissioner of the U.S. Securities and Exchange Commission in January 2018.
In an interview with Foresight News, she admitted that her views on the crypto industry have gradually evolved since joining the SEC, but overall, she is still frustrated by the lack of progress made in U.S. crypto regulation.
On the one hand, a large number of entrepreneurs in the crypto space need to open business entities offshore or refuse to provide services to Americans, which is what she "does not want to see". On the other hand, the SEC is currently facing challenges in regulating the crypto industry. Hester M. Peirce believes that at a time when the U.S. Congress has shown a strong interest in setting up a legislative framework for the crypto industry, proposing constructive ideas and accelerating their implementation is what the SEC should do in addition to law enforcement.
The following is the interview content.
Foresight News: You are widely regarded as a very pro-cryptocurrency commissioner. You have even earned the nickname “Crypto Mom” for your supportive stance on cryptocurrencies. How have your views on cryptocurrency regulation evolved since you joined the SEC? What drives you to continue to speak out for the industry?
Hester M. Peirce: First, let me make it clear that my views are my personal views as a Commissioner and do not necessarily represent the views of the SEC or my fellow Commissioners.
My thinking has certainly evolved since I joined the SEC in January 2018. Initially, I didn’t think we needed specific regulatory changes for cryptocurrencies. But as I learned more about what was happening in the crypto space and the nature of the entities involved (often small development teams), it became clear that we needed to have a clearer definition of the SEC’s role. We need to provide projects with a path to achieving commercial viability while meeting statutory objectives, which may require some exemptions from the rules.
I am frustrated by our lack of progress, and it motivates me to continue advocating for better interaction with the crypto world. One future direction I would like to see the SEC take is one where it exists not just as a “Securities and Enforcement Commission” but where crypto projects feel like they can actually come and talk to us, and register if necessary.
Foresight News: What specific “progress” do you hope to see?
Hester M. Peirce: I hope that people who use crypto and blockchain technology can focus on their projects. They should have enough understanding of the regulatory framework that they don't need to spend all their time thinking about it or designing around legal uncertainty. Good regulation allows innovators to build under clear rules instead of constantly trying to understand the rules they are following.
Foresight News: How do commissioners balance different views on cryptocurrency regulation? Do you often try to persuade others, and how do you resolve specific policy disagreements?
Hester M. Peirce: The SEC is uniquely structured as a politically balanced commission, which naturally leads to disagreements. However, this structure helps maintain policy continuity. We discuss and debate issues, many of which are not particularly controversial. After all, we all want the capital markets to work well. Sometimes we persuade each other to change our views.
While I am frustrated with our progress, I am also optimistic that we can make a difference. We can decide tomorrow to stop letting “law enforcement” dominate crypto and instead work through these difficult issues at the committee level and engage others in the conversation.
Foresight News: What are the main challenges facing the SEC in regulating cryptocurrencies? What is the current regulatory focus in this space? Looking ahead, what do you see as the most pressing challenges? In what specific areas do you think the Commission needs to adjust its approach?
Hester M. Peirce: We face several challenges: First, we tend to view the properties of encryption as purely financial, but this is not the case. Many applications, such as decentralized physical infrastructure, may not be primarily financial in nature. We need to be cautious not to impose financial regulation in inappropriate places.
Second, the technology is difficult to understand and is evolving rapidly. It takes some effort to cut through the hype and truly understand the underlying innovation, which can be challenging for regulators of large markets like ours.
Third, limitations in time and energy are also an issue. We have a lot of other things on our agenda, so finding the time to deal well with crypto-related topics can also be challenging.
Finally, there is another challenge that may also be partly due to ourselves. We know that there is some bad activity in the cryptocurrency space, and if we had done a better job of regulating it before, it would be easier to distinguish between good and bad actors in the crypto industry. (Especially if there is insufficient previous work, it will also) affect how we allocate limited law enforcement resources.
Foresight News: In your recent speech, you stressed the need for regulatory humility. Can you elaborate on how this concept applies specifically to the SEC’s regulatory approach to cryptocurrencies?
Hester M. Peirce: Regulatory humility is essential to everything we do. The older I get, the more I believe in the depth and diversity of talent in the world. As a regulator, I have limited knowledge, so why should I isolate myself from people with different experiences and educational backgrounds?
Applying this philosophy to crypto means we need to have an open conversation about the right approach to regulation that allows for diverse participation. We shouldn't do this primarily through enforcement settlement rooms, where power and influence are imbalanced and many voices are excluded.
A humble approach will allow us to do better regulation in many areas, including crypto. This is something we all need to work towards. We only see a small part of the world and are always looking for other perspectives.
Foresight News: The approval of the Bitcoin ETF and Ethereum ETF is a significant development. From the SEC’s perspective, how do you see this impacting the broader cryptocurrency market and the Commission’s regulatory approach going forward?
Hester M. Peirce: These approvals are milestones, and it's great that people now have the opportunity to buy these (ETF) products if they think they're right for their portfolio.
However, one should not read too much into this. The court told us that our decision not to approve a Bitcoin ETF was arbitrary and capricious. When the court said that, we had little choice but to apply what we have done with similar products in the past. This case is also the context in which people will surely evaluate the SEC’s regulatory direction for the broader crypto space.
Foresight News: The debate over whether to classify cryptocurrencies as securities or commodities continues. How do you see this debate evolving within the SEC in light of recent court rulings and regulatory actions?
Hester M. Peirce: I don't think we've approached this with the legal rigor that is needed. We need to be strict with the law, but also think about what we want to achieve. One thing that drives a lot of SEC regulation around cryptocurrency is that we are a disclosure regulator. We want people to get disclosure about what they're buying, and that's not a bad goal in this space.
We need to have a conversation about what our goals are and then figure out the best way to achieve those goals. We need to ask questions like: What are similar assets? How should crypto assets be treated compared to other similar assets? We need to have that legal conversation.
Foresight News: Many crypto project founders, some of whom are even U.S. citizens, choose to register projects in offshore locations or not serve U.S. customers due to regulatory concerns. How does the SEC view this trend, and what steps do you think we can take to make the U.S. more competitive in attracting crypto innovation?
Hester M. Peirce: Personally, I want the United States to be a place where people from all over the world come to build. We have always been a place where entrepreneurs and innovators like to gather and create new things together. I hope the same will be true for cryptocurrency innovation.
Right now, there are fewer concerns about (crypto projects and talent) moving overseas because people are skeptical about whether real innovation can happen in the cryptocurrency space. But ultimately, our job is to do the best regulation we can, and then people make decisions based on their own criteria.
I hope we can tell people that the SEC is open to innovators from anywhere. We want people to come here and build things here, just as people come here from all over the world to invest in our capital markets, because our markets are very good markets. I hope the quality of our markets is the reason why people decide to come here.
Foresight News: While mainland China has taken a strict stance on cryptocurrencies, Hong Kong has recently taken a more open approach to crypto regulation. As an SEC commissioner, how do you view the regulatory differences between the U.S. and major Asian markets such as Singapore and Hong Kong? What insights or lessons do you think U.S. regulators can gain from observing these different regulatory approaches in Asia?
Hester M. Peirce: One thing we can do is learn from other places’ approaches. For example, Japan has a relatively long history of cryptocurrency regulation. Singapore has seen that they really try to provide people with opportunities to try the technology.
I would like to see more openness in the U.S. to experimenting with this technology by traditional financial institutions as well as new entrants. Recently, I proposed a proposal for a "micro-innovation sandbox." Ideally, it would allow cross-border participation and experiments involving multiple jurisdictions. Even if there is something like this in the U.S., it is somewhat inspired by the openness to experimentation in places like Singapore.
We see other jurisdictions dealing with some of the same issues we are dealing with, and we have a lot to learn from them.
Foresight News: In the United States, there has been growing discussion about the so-called "election effect" on cryptocurrency regulation, with some candidates even proposing to establish crypto reserves. How likely do you think it is that there will be significant changes in cryptocurrency regulation based on the election results? If these changes do occur, how might they affect regulatory approaches in other jurisdictions around the world?
Hester M. Peirce: I'm more focused on coming up with good ideas so that they're ready to be used when our agencies are ready to adopt them. We could decide tomorrow to take a different approach to regulating cryptocurrencies. So we have to have good proposals ready. That's why I proposed the "safe harbor" (proposal for tokens) a few years ago and the "micro-innovation sandbox" proposal more recently. I welcome others to comment on this - and other ideas about how we can do a good job of regulation.
In the United States, Congress has shown a lot of interest in developing a legislative framework for cryptocurrencies. This is already happening. We've seen a lot of activity this year. So we shouldn't wait, we should be working now to get ideas into place as quickly as possible and move forward as quickly as possible.
Foresight News: The cryptocurrency market is significantly influenced by key figures on X, such as Elon Musk or Donald Trump. How does the SEC view this phenomenon from a regulatory perspective? Are there any considerations or discussions within the SEC about potentially addressing or regulating these market-influencing statements on social media?
Hester M. Peirce: I don't want to talk about any specific crypto assets or individuals, but I will say that in traditional securities markets we have rules about encouraging others to buy or not buy securities.
I also have common sense advice for someone considering buying an asset: Do I understand it, or have I hired someone who does? Does it fit my portfolio? Can I afford to lose money? What is the risk-reward balance? Why did this person recommend it to me, and what benefit do they get from it?
Regardless of the asset, people need to ask these questions. Some assets may or may not fall under our regulatory jurisdiction, so sometimes these questions are for us to answer and sometimes they are not. But regardless of the jurisdiction, people should be careful when deciding whether to buy or not to buy and consider whether they can afford to lose.
I believe in personal freedom and the right of people to make decisions about their own money. But with freedom comes responsibility. Make educated decisions, or if you prefer to let someone else manage your money, there are professionals who can help. There are databases where you can research these professionals and make sure you are working with someone you can trust.
Foresight News: Cryptocurrency exchanges in the United States, such as Coinbase, are currently prohibited from offering services such as futures contracts and leveraged trading. Do you foresee any changes to these restrictions in the foreseeable future? How will the SEC balance financial product innovation and investor protection in the cryptocurrency space?
Hester M. Peirce: I want to answer this question because it's an interesting question.
Sometimes we think of innovation and investor protection as being at odds with each other, but a key component of investor protection is making sure people have access to the products and services they want while also ensuring they have the information they need to make good decisions.
I tend to say we shouldn't hinder products and services, and what we should really do is help people get the information they need. As for whether a particular entity can or can't provide (these products and services), these issues are very delicate, and some of the products and services you mentioned may not be within the purview of the SEC. A lot of these issues come back to whether these products and services are securities.
When it comes to futures products, we have an unusual (regulatory) structure in the United States. We have the Commodity Futures Trading Commission as the futures regulator. Therefore, some of the questions (in your question) are very delicate, and I don't want to respond to them without knowing the specific facts and circumstances in advance.