Hester Peirce, a commissioner at the Securities and Exchange Commission (SEC), criticized the current state of cryptocurrency regulation in the United States, likening it to the children’s game “The Floor is Lava,” where businesses must avoid direct exposure to crypto assets while dealing with unclear regulations. Speaking at the SEC’s “Know Your Custodian” roundtable on April 25, Peirce explained that companies working in cryptocurrencies must jump from one poorly defined regulatory arena to another. She noted that the regulatory landscape is fraught with uncertainty, with businesses unsure which crypto assets qualify as securities or whether activities such as staking or voting rights would trigger violations.
Peirce’s analogy captures the confusion investment advisors face when determining which assets qualify as securities and who can serve as a qualified custodian for crypto assets. She stressed that the current lack of clear guidelines has left companies operating in the dark. This uncertainty, Peirce noted, makes it difficult for crypto markets to grow within the existing regulatory framework.
Another SEC Commissioner, Mark Uyeda, echoed Peirce’s concerns and suggested that the SEC should expand custody options, including allowing state-chartered limited purpose trust companies to serve as custodians for crypto assets. Uyeda argued that without proper custody services, broker-dealers and alternative trading systems (ATS) would have difficulty facilitating crypto trading, hampering the growth of the market.
Peirce also discussed the need for regulations to recognize the differences between different digital assets. She argued that while some crypto assets require a qualified custodian, others may be better suited for self-custody. She warned that overly strict regulation could stifle decentralized trading and urged the SEC to adopt a framework that recognizes the nature of different crypto assets.
Her comments come amid a broader discussion in the cryptocurrency regulatory space, with SEC Chairman Paul Atkins expressing support for clearer rules to promote the growth of the cryptocurrency market. Atkins also highlighted potential benefits of blockchain, such as increased efficiency, reduced risk, and greater transparency. He stressed the importance of working with market participants and lawmakers to create a regulatory framework that meets the needs of the cryptocurrency industry.
Both Peirce and Atkins criticized the previous leadership under Gary Gensler for increasing regulatory uncertainty. Peirce explained that as more companies get involved in the cryptocurrency space, there is a pressing need for clear custody solutions that meet legal and regulatory standards. She believes that without clear custody and asset classification guidelines, the U.S. cryptocurrency market will continue to face challenges in expanding safely. In summary, both Peirce and Atkins stressed the need for a clearer regulatory approach to facilitate a thriving cryptocurrency industry while protecting investors.
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