Why Commissioner Hester Peirce’s second term at the SEC is good for crypto

Markets Jun 9, 2020

Hester Peirce, one of five commissioners with the U.S. Securities and Exchange Commission (SEC), has been nominated by US President Donald Trump for a second term according to news first reported by Bloomberg Law. Without the renomination, her term would have expired last Friday, but instead has been extended to 2025 pending the Senate’s approval.  

Peirce has been one of the most forward-thinking and pro-innovation Commissioners to ever serve on the Commission. Since taking office in January 2018, she’s been made into a kind of hero in the eyes of the crypto community due to her progressive thinking and public defense of new technologies and the people building them. In fact, her positive remarks about the technology were so well received that she was quickly given the nickname “Crypto Mom”.

Here are four reasons why Pierce’s reappointment with the SEC is a welcome sign for the digital asset ecosystem in the United States:

1. She proposed the safe harbor period for crypto token sales

Earlier this year, Peirce proposed a three-year safe harbor for crypto startups looking to issue tokens as a way of allowing these companies to launch token projects without fear of running afoul of U.S. securities laws. The proposal, which CoinList supports, would allow network developers a three-year grace period to build a decentralized network as well as attract participants before being subject to SEC regulations.

By putting development first and giving these companies runway to build out robust networks, the proposed safe harbor is a big step toward supporting American access and acceptance of digital assets. In the long term, this would help foster greater network participation and bring more U.S. citizens into the digital asset ecosystem.

Pierce has publicly recognized the difficulty networks face when trying to scale, stating that the security laws frustrate the new operator’s ability to mature. This can be traced to the fact that some token sales may appear to have the qualities of a securities offering at launch, but when the network later matures to the point where the token no longer bears the traditional characteristics of a security, the traditional regime is no longer appropriate.

While Pierce supports the nascent industry, she is equally concerned with protecting token purchasers and maintains that networks will need to provide adequate disclosures and hold operators accountable in an effort to prevent fraud. After the three-year grace period, networks would be expected to achieve a level of decentralization that sufficiently passes the SEC’s securities-law rubric, including the infamous Howey Test.

2. She engaged the crypto community

Not only did Peirce try to give crypto networks the time they need to mature, but she asked the crypto community (and others) for feedback in an open letter entitled “Tell Me How to Improve My Safe Harbor Proposal.” Many in the community applauded the gesture and joined in a constructive discussion, including our very own General Counsel, Georgia Quinn. While many questions and critiques were presented on how the proposed regulation would work on an international scale, the fact that Commission Peirce engaged the crypto community in an open dialogue with the SEC is a big win in and of itself for crypto. As Peirce herself commented:

“I see this safe harbor as a case study as to how we handle innovation. I am not an advocate of a technology or tokens, but I do think there is a beauty to decentralization that allows us to bring people into the economy that have previously been shut out. It enables you to bring people together from across the world in a way that is new, a different way of meeting people’s objectives in a common effort other than a corporation. I see the promise in it.”

3. She dissented against the SEC’s decision to reject a Bitcoin ETF

In July 2018, Peirce publicly dissented the SEC’s decision to reject a bitcoin exchange-traded product (EFT) fund application filed by Tyler and Cameron Winklevoss. The brothers proposed a rule change to the 1934 Securities Exchange Act that would help them trade commodity-based shares of their Winklevoss Bitcoin Trust on the Bats BZX Exchange. The price of bitcoin dipped 3% after the news, as many in the industry believed this would be the first bitcoin ETF approved by the U.S. financial watchdog.

Peirce openly dissented the ruling and argued that the Winklevoss proposal was worthy of approval. She claimed that the decision was a disservice to investors and that it was wrong for the SEC to focus on manipulation in the spot market for bitcoin and that the risks in question were taken into consideration when BZX made its pitch to the SEC. As she commented in a CoinDesk interview:

“I think the exchange, in making a decision to list this particular product, had looked into whether it thought investors were interested in it, and if investors are interested in it, I don’t see why we should stop them from having access to it…. From my perspective, we need to be mindful of what our role is, and it’s not to be the ones who decide which innovations and which technologies get through and which ones don’t.”

Peirce reaffirmed her position in February 2020 when she again dissented to the SEC’s decision to reject NYSE Arca from trading shares of the United States Bitcoin and Treasury Investment Trust and noted the apparent double standard placed on the crypto industry.

“This line of disapprovals leads me to conclude that this Commission is unwilling to approve the listing of any product that would provide access to the market for bitcoin and that no filing will meet the ever-shifting standards that this Commission insists on applying to bitcoin-related products — and only to bitcoin-related products.”

This type of thoughtful and articulate analysis is absolutely invaluable and while applicable to all innovation, provides needed legitimacy to the crypto industry.

4. She argued in favor of self-regulation for cryptocurrency markets

During a public talk with former Commodity Futures Trading Commission (CFTC) chairman Gary Gensler at the MIT Bitcoin Expo in March 2019, Peirce made a strong case in favor of self-regulation for the cryptocurrency markets.

Gensler called for a more “robust and unified” national framework that would regulate crypto networks. This would cover trading platforms that offer security tokens, complex investment instruments, as well as those that list commodities such as Bitcoin (BTC). His arguments centered on improving investor protection, coordinating money-laundering prevention and addressing the current regulatory and enforcement discrepancies across different states.

Peirce countered, stating, “One really important thing to remember is that people regulate each other in their interactions with one another, and that’s the whole purpose of the Bitcoin idea, that it would be a community that would be able to regulate itself. As problems arise, people in that community are thinking about how to deal with those problems. One model would be to have a government regulator, but I don’t think that’s the only model.”

As a steward of entrepreneurship, Peirce said her repeated dissent to government control comes out of her goal to make the SEC a “little more open to innovation.” As part of that initiative, Peirce is working on key non-enforcement guidance for cryptocurrencies, listing three different goals for the agency: clarifying whether a cryptocurrency is a security or not, helping people determine when a cryptocurrency might transition from a security into something else and helping trading platforms understand when they are falling short of SEC requirements.

If the senate backs her, Hester Peirce could have at least five more years at the SEC, a task she is more than willing to do.

“I certainly don’t feel done with what I want to do at the SEC. I really don’t feel done. There’s lots of work still to be done,” Peirce said in February.

We couldn’t agree more and look forward to continued progress for the U.S. digital asset industry under Commissioner Peirce.

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This blog post is being distributed by Amalgamated Token Services Inc., dba “CoinList,” or one of its subsidiaries. Use of the CoinList website is subject to certain disclosures, restrictions and risks, available here.

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