Dialogue with the SEC "Crypto Mom": Behind the $3 billion in fines over the past 10 years is the insufficient progress of U.S. regulation

Author: Wendy, Foresight News

Interviewee: Hester M. Peirce, Commissioner of the U.S. Securities and Exchange Commission

"On my first day in office, I would immediately fire Gensler" ------ this is the promise made by former President Trump, a candidate in the U.S. 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 (SEC), a person who has undergone a significant reputation shift in the crypto community, going from being highly regarded to facing severe criticism. According to Coinbase founder Brian Armstrong, in just a few years, Gensler has transformed from a lecturer in blockchain courses at the Massachusetts Institute of Technology to the number one "sniper" in the crypto community, all due to his political identity.

At a time when there is no clear answer to the question of "who should regulate cryptocurrencies," the SEC, where Gensler serves, has become the most active regulatory body in the crypto space.

Statistics provided by Cornerstone Research show that since the SEC first initiated enforcement actions related to cryptocurrencies in 2013, the agency has launched a total of 173 enforcement actions as of 2023. By the end of 2023, the SEC had imposed fines totaling approximately $2.89 billion on participants in the digital asset market. In 2023, the total number of SEC enforcement actions related to crypto reached a historic high, increasing by 50% compared to 2022.

The SEC's official website describes it as a "fruitful" year.

Despite the SEC frequently "taking aim" at leading companies in the crypto industry, there are also commissioners within the agency who hold a friendly attitude towards crypto. Among the five SEC commissioners, including Gensler, Hester M. Peirce stands out as a prominent advocate, earning her the nickname "crypto mom" within the industry.

Hester M. Peirce holds a bachelor's degree in economics from Case Western Reserve University and a J.D. from Yale Law School. She was nominated by then-President Trump in 2017 and officially sworn in as a commissioner of the SEC in January 2018.

In an interview with Foresight News, she candidly admitted that her views on the crypto industry have gradually evolved since joining the SEC, but overall, she remains frustrated by the insufficient progress in U.S. crypto regulation.

On one hand, many entrepreneurs in the crypto space need to establish offshore business entities or refuse to serve U.S. customers, which is something she is "unwilling to see." On the other hand, the SEC currently faces challenges in regulating the crypto industry. Hester M. Peirce believes that given the strong interest shown by the U.S. Congress in establishing a legislative framework for the crypto industry, it is essential to propose constructive ideas and accelerate their implementation, which is something the SEC should do beyond enforcement.

The following is the interview content.

Foresight News: You are widely regarded as a very supportive commissioner of cryptocurrencies. Due to your supportive stance, you have even earned the nickname "crypto mom." How have your views on cryptocurrency regulation evolved since you joined the SEC? What drives you to continue advocating for this industry?

Hester M. Peirce: First, I want to clarify that my views are my personal opinions as a commissioner and do not necessarily represent the views of the SEC or my fellow commissioners.

Since joining the SEC in January 2018, my thoughts have indeed evolved. Initially, I believed we did not need specific regulatory changes for cryptocurrencies. However, as I gained more understanding of what is happening in the crypto space and the nature of the participating entities (often small development teams), it became clear to me that we need to define the SEC's role more clearly. We need to provide a pathway for projects that meets statutory goals while also being commercially viable, which may require some exemptions from rules.

I am frustrated by our lack of progress, and this motivates me to continue advocating for better interaction with the crypto world. I hope to see the SEC evolve in a way that it exists not just as a "Securities and Enforcement Commission," but also makes crypto projects feel they can genuinely communicate with us and register when necessary.

Foresight News: What specific "progress" do you hope to see?

Hester M. Peirce: I hope that those using crypto and blockchain technology can focus on their projects. They should have enough understanding of the regulatory framework so that they do not have to spend all their time thinking about it or designing (projects) around legal uncertainties. Good regulation allows innovators to build under clear rules rather than constantly trying to understand the rules they are following.

Foresight News: How do commissioners balance differing viewpoints on cryptocurrency regulation within the SEC? Do you often try to persuade others, and how do you resolve specific policy disagreements?

Hester M. Peirce: The SEC has a unique structure as a politically balanced commission, which naturally leads to differences of opinion. However, this structure helps maintain policy continuity. We discuss and debate issues, and many issues are not particularly controversial since we all want the capital markets to function well. Sometimes we persuade each other to change our viewpoints.

While I feel frustrated by our progress, I remain optimistic about our ability to make changes. We could decide tomorrow to stop letting "enforcement" dominate cryptocurrency and instead address these challenges at the commission level, involving others in the dialogue.

Foresight News: What are the main challenges the SEC faces in regulating cryptocurrencies? What is the current regulatory focus in this area? Looking ahead, what do you see as the most pressing challenges? In which 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 attributes of crypto as entirely financial, but that is not the case. Many applications, such as decentralized physical infrastructure, may not primarily be financial. We need to be cautious not to impose financial regulation inappropriately.

Second, the technology is difficult to understand and evolves rapidly. It takes effort to truly understand the underlying innovations after clarifying some exaggerated claims, which can be challenging for a large market regulator like us.

Third, limitations in time and resources are also an issue. We have many other items on our agenda, so finding time to adequately address crypto-related issues can also be challenging.

Finally, there is a challenge that may partly stem from ourselves. We know there are some bad actors in the crypto space, and if we had done a better job regulating in the past, it would have been easier to distinguish good participants from bad ones in the crypto industry. (Especially insufficient early work also affects how we allocate limited enforcement resources.)

Foresight News: In your recent speech, you emphasized the need for regulatory humility. Can you elaborate on how this concept specifically applies to the SEC's approach to cryptocurrency regulation?

Hester M. Peirce: Regulatory humility is crucial to everything we do. As I grow older, I increasingly believe in the depth and diversity of talent in the world. As a regulator, my knowledge is limited, so why should I isolate myself from people with different experiences and educational backgrounds?

Applying this idea to the crypto space means we need to have open dialogues about the right regulatory approaches, allowing for diverse participation. Our (regulation) should not primarily be done through enforcement and settlement rooms because there, power and influence are imbalanced, and many voices are excluded.

A humble approach will enable us to regulate better in many areas, including crypto. This is a direction we all need to strive for. We must recognize that we only see a small part of the world and are always looking for other perspectives.

Foresight News: The approval of Bitcoin ETFs and Ethereum ETFs is a significant development. From the SEC's perspective, how do you view the impact of this on the broader cryptocurrency market and the commission's future regulatory approach?

Hester M. Peirce: These approvals are milestones, and if people believe these (ETF) products are suitable for their portfolios, it is great that they now have the opportunity to purchase them.

However, people should not overinterpret this. The courts have told us that our previous refusal to approve Bitcoin ETFs was arbitrary and capricious. When the courts say this, we have little choice but to apply our past handling of similar products to this case. The context of this case is that people will certainly evaluate the SEC's regulatory direction towards the broader crypto space through it.

Foresight News: The debate over classifying cryptocurrencies as securities or commodities continues. In light of recent court rulings and regulatory actions, how do you view the development of this debate within the SEC?

Hester M. Peirce: I believe we have not addressed this issue with the legal rigor required. We need to adhere strictly to the law, but we also need to consider what we want to achieve (goals). One thing driving many SEC regulatory policies related to cryptocurrencies is that we are a disclosure-regulating agency. We want people to receive information disclosures about what they are buying, which is not a bad goal in this space.

We need to have a dialogue about our goals and then figure out the best ways to achieve them. We need to ask questions like: What are similar assets? How should crypto assets be treated compared to other similar assets? We need to engage in this legal dialogue.

Foresight News: Many founders of crypto projects—some of whom are even U.S. citizens—choose to register their projects offshore or refuse to 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 hope the U.S. becomes a place where people from around 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 crypto innovation is no different.

Currently, there is less concern about (the migration of crypto projects and talent) overseas because people are skeptical about whether true innovation can happen in the crypto space. But ultimately, our job is to do our best to provide the best regulation, and then people will make decisions based on their standards.

I hope we can convey to people that the U.S. SEC is open to innovators from anywhere. We want people to come here and build things, just as people come from around the world to invest in our capital markets because our markets are very good. I hope the quality of our markets becomes the reason people decide to come here.

Foresight News: While mainland China has taken a strict stance on cryptocurrencies, Hong Kong has recently adopted a more open regulatory approach to crypto. As an SEC commissioner, how do you view the regulatory differences between the U.S. and major Asian markets like 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 the approaches adopted elsewhere. For example, Japan has a relatively long history of regulating cryptocurrencies. Singapore believes they are indeed working hard to provide people with opportunities to try the technology.

I hope to see more openness in the U.S. towards traditional financial institutions and new entrants experimenting with this technology. Recently, I proposed a "micro-innovation sandbox." Ideally, it would allow for cross-border participation and experiments involving multiple jurisdictions. Even if something like this exists in the U.S., it is somewhat inspired by the openness to (crypto innovation) experiments seen in places like Singapore.

We see other jurisdictions dealing with some of the same issues we are facing, and there is much we can learn from them.

Foresight News: In the U.S., there is increasing discussion about the so-called "election effect" on cryptocurrency regulation, with some candidates even proposing the establishment of a crypto reserve. How likely do you think it is that significant changes in cryptocurrency regulation will occur based on election results? If these changes do happen, how might they affect the regulatory approaches of other jurisdictions globally?

Hester M. Peirce: I am more focused on proposing good ideas so that when the institution is ready to adopt them, they can be utilized. We might decide tomorrow to take a different approach to regulating cryptocurrencies. So we need to prepare good proposals. That is why I proposed a "safe harbor" for tokens a few years ago and recently proposed a "micro-innovation sandbox." I welcome others to provide feedback on this—along with other ideas on how we can do a good job of regulation.

In the U.S., Congress has shown great interest in establishing a legislative framework for cryptocurrencies. This is already happening. We have seen a lot of activity in this area this year. So we should not wait; we should work hard to implement ideas as soon as possible and push forward.

Foresight News: The cryptocurrency market is significantly influenced by key figures on X, such as Elon Musk or Donald Trump. From a regulatory perspective, how does the SEC view this phenomenon? Is there any consideration or discussion within the SEC about potentially addressing or regulating these statements that influence the market on social media?

Hester M. Peirce: I do not want to comment on any specific crypto assets or individuals, but I will say that in traditional securities markets, we have rules regarding encouraging others to buy or not buy securities.

For those considering buying assets, I have a common-sense suggestion: (that is to consider these questions): Do I understand this, or have I hired someone who understands it? Does this fit my portfolio? If I incur losses, can I bear it? What is the risk-reward balance? Why is this person recommending this (asset) to me, and what benefit do they gain from it?

Regardless of what the asset is, people (before making investment decisions) need to ask these questions. Some assets may or may not fall under our regulatory scope, so sometimes these questions are ones we need to answer, and sometimes they are not. But regardless of jurisdiction, people should be cautious when deciding whether to buy or not, considering whether they can bear the losses.

I believe in personal freedom and the right of people to make decisions about their own assets. But freedom comes with responsibility. To make informed decisions, or if you are willing to let others manage your money, there are professionals who can help. There are databases where you can research these professionals to ensure you are working with trustworthy individuals.

Foresight News: U.S. cryptocurrency exchanges, such as Coinbase, are currently prohibited from offering services like futures contracts and leveraged trading. Do you foresee any changes to these restrictions in the foreseeable future? How does the SEC balance financial product innovation and investor protection in the cryptocurrency space?

Hester M. Peirce: I want to address this question because it is an interesting one.

Sometimes we think of innovation and investor protection as being at odds, but a key component of investor protection is ensuring that people can access the products and services they want while ensuring they have the information needed to make good decisions.

I tend to say we should not hinder products and services; what we should really do is help people obtain the information they need. As for whether specific entities can or cannot provide (these products and services), these questions are very nuanced, and some of the products and services you mentioned may not fall under the SEC's jurisdiction. Many of these questions circle back to whether these products and services are securities.

When it comes to futures products, we have an unusual (regulatory) structure in the U.S. We have the Commodity Futures Trading Commission as the futures regulatory body. Therefore, some of the questions you raised are very nuanced, and without understanding the specific facts and circumstances, I do not want to respond to them.