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There’s just something about Commissioner Peirce’s style. Whether it’s the ideology she has, the thoughts she offers or the way in which she expresses them, it is always a treat to read her words. She is proof that, in an otherwise foggy world of bureaucracy, common sense can prevail. Her latest treatise? Remarks for the Regulatory Transparency Project Conference, in which she likens the crypto regulatory journey to the book, ‘Are You My Mother?’
Peirce wrote,
“The conversation reminds me of a book for toddlers, ‘Are You My Mother?’ In that book, a newly hatched bird searches for his mother. He asks a cat, dog, hen, cow and front-end loader, each of which disappoints the baby bird with the news that it is not the baby bird’s mom. Rest assured, baby bird and his actual mother are finally reunited.
“The crypto industry seems to be on a similar journey only it is not looking for a mother but is out looking for its regulator. In a bureaucratic twist on the story in the children’s book, in our story, every agency claims to be the regulator. So, crypto is looking to Congress to decide who ought to regulate it.”
In one fell swoop, she says she understands why there’s so much excitement over the bill that Senators Lummis and Gillibrand hammered out, which offers the CFTC oversight over cryptocurrency. She then goes on to say that the SEC should change course and move forward with vigor, particularly in approving a spot Bitcoin exchange-traded product. Then she moves on to what really is the crux of the matter dults should be able to choose their investment vehicles freely.
Peirce continued,
“Watching the SEC refuse over the past four years to engage productively with crypto users and developers has prompted feelings of disbelief at the SEC’s puzzling, out-of-character approach to regulation. The Commission, of course, occasionally has explained its actions or inaction but those explanations often have been confusing, unhelpful, and inconsistent. People exercising skepticism great enough to quell the dangerously seductive fear of missing out should choose what to put in their portfolios when and in what quantities.
“Whether assisted by a financial professional or flying solo, investors should invest based on factors such as their own present and anticipated future circumstances, informed risk assessments of the asset they are considering buying and the portfolio of assets in which it will sit and a candid gut check of their stomach for market volatility and financial loss.
“They should be aware, as recent events illustrate, that past performance of an asset is no guarantee of future performance. People should not look to regulators to make investment decisions for them, and regulators should not seek to play that role.”
Commissioner Peirce is, in fact, correct. Regulators should not seek to play the role of financial advisors – or should the public expect them to do so. Over the past few decades, we have moved closer and closer, in many aspects, to that of a nanny state. We live in a world where the government is expected to do so much more than it was back in the days of our grandparents. As President Jefferson said, the “government big enough to give you everything you want is strong enough to take away everything you have.”
And for the past half-decade, as it has become more and more apparent that blockchain technologies, including cryptocurrencies, were here to stay and required common sense regulation, regulating bodies continued to pass the buck. Regulators across the globe have been warning investors about the volatility of digital assets. Though, more and more, Bitcoin and other mainstream cryptocurrencies have been following the same trends as more traditional assets, including stocks traded on the NASDAQ.
However, I think Commissioner Peirce’s argument sidesteps that completely. It isn’t the government’s job to decide what level of risk is acceptable for investors. Instead, it is the government’s job to ensure that exchanges are safe and secure. That investors are not being intentionally misled and scammed. That exchanges aren’t aiding money launderers and terrorist organizations. Those are the functions of government.
It is time for bureaucrats to return to the scope of their charge. Whether that body, in the United States, is the SEC or the CFTC would be of little consequence if the agencies stuck to their charge. The digital assets industry is strong, and despite the current dip, it will remain a major factor in finance. The current downturn has struck traditional assets, just as it has struck cryptocurrencies. Last month, the Dow Jones lost 1,100 points in a single day. The S&P 500 has slipped into a bear market.
But inexplicably, commentators discuss the crypto winter as if it is alone and as if the downturn hasn’t been stoked by external factors. Bitcoin and other digital assets will survive the rampant inflation caused by massive pandemic spending packages. It will survive the uncertainty of the war in Ukraine. And it will re-emerge.
Once investor fear has subsided and the industry has re-emerged, blockchain technologies will completely alter the way the world interacts with finance. It will provide innovation-driven, high-paying jobs. It will expand its tentacles, and centers of fintech will become global economic destinations.
For this to happen, we need common sense regulation that protects society while promoting innovation. Commissioner Peirce is correct the SEC has not been leading well. But they can change course. The industry deserves better, and so do investors.
Richard Gardner is the CEO of Modulus. He has been a globally recognized subject matter expert for more than two decades, offering complex insight and analysis on cryptocurrency, cybersecurity, financial technology, surveillance technology, blockchain technologies and general management best practices.
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