Hester Peirce, a Trump appointee, was sworn in as an SEC commissioner on Jan. 11, 2018. She worked in relative obscurity—as most SEC commissioners do—until late July, when she became the lone voice of dissent in the commission’s decision to reject Cameron and Tyler Winklevoss’s application for a bitcoin-related exchange-traded fund (ETF). Peirce argued that the SEC’s judgment sent a “strong signal that innovation is unwelcome in our markets,” an opinion that made her a hero in the cryptocurrency community. Once news of her dissent spread, her Twitter following shot up (it’s now at nearly 22,000) and the internet bestowed on her an affectionate nickname: Crypto Mom.
The industry press parses Crypto Mom’s every public utterance in an attempt to predict what the SEC will do next regarding digital currency. And now, with this exclusive BREAKERMAG interview with Peirce, the media has some new brand-new fodder for speculation.
What was your reaction to being nicknamed Crypto Mom?
I think that it’s funny. As I said in the speech that I subsequently gave: I’m not a mom, [but] it’s always nice to be dubbed Mom.
You said in that speech that “one of the wonderful aspects of motherhood is that children are quite different than their mothers anticipated they would be.” What are your crypto kids like?
Typically when one dreams of being a mother, one dreams of having real children. But these are not my children—that’s what I meant.
But I think, generally, in the space there’s lot of really interesting work going on, and I certainly should start out by saying that nothing I say is endorsing any product or any particular project. But I think it’s interesting that people are looking at the world with an eye toward solving some problems that we’ve seen cropping up and are doing so using new technology. It’s exciting to see people really enthusiastic about approaching problems in new and different ways. And that’s why I think we need to be careful from a regulatory standpoint to keep the doors open so that people who do have new ideas and want to do new things are able to work with us and figure out how they can do that in a way that’s consistent with our regulatory framework.
"[Crypto is] something that all of us at the commission are being forced to grapple with now."
What sparked your interest in blockchain and cryptocurrencies? Do you personally own any crypto?
I don’t, and I think it would be inappropriate for me to own any given the position that I’m in. I’m limited in what I’m allowed to hold, in any event. It’s something that I’d heard about before coming to the SEC. I read about it and heard about it and knew some people who knew a lot more about it than I did, and I really got a sense that this is something where a lot of really bright minds are putting a lot of time. That’s what got me interested. Obviously from the standpoint of my current job, I have no choice but to think about it because it’s coming up before us in a number of different ways. It’s something that all of us at the commission are being forced to grapple with now.
Did you foresee what a big deal your dissent in the Winklevoss ETF judgment would be?
No. What I was really trying to do is just say, “I don’t think that this approach that we’re taking is wise from the perspective of a securities regulator.” And if you follow the logic that was used in that denial, I think it would take us places that we really didn’t want to go and where we don’t have the authority to go.
When you say “places that we really didn’t want to go,” what do you mean?
I’m very resistant to the idea of being a merit regulator. I think that’s not why the SEC was set up originally, and that’s certainly not what I see the statutory directive as being, and certainly not why I went to the SEC. I think that the agency is there to make sure that investors get information about products that they’re interested in, and then they can make their own decisions. I think it’s not our call to try to restrict people’s options.
One of the things I’m concerned about, particularly in this context, is that we took a look at the underlying market for bitcoin and we said, “Oh, this market is not comfortable for us because it’s not regulated enough.” But that’s not the market that we regulate—we regulate the market for the exchange-traded products, and we’re worried about how those markets operate. And that’s really where our focus should have been concentrated. Lots of markets that underly products don’t look anything like securities markets, and sometimes they’re not particularly well-regulated or organized in ways that we might be familiar with, but that doesn’t mean that you can’t build a securities product on top of them.
The cryptocurrency and blockchain press seems to hang on your every word. How does it feel to have your pronouncements scrutinized so closely?
Generally, people are looking for regulatory clarity. And so when a regulator speaks, people pay attention to that, and I think that’s just more evidence that we as a regulator need to do a better job in providing clarity so that people don’t have to care what I say on Twitter, they can look at our rulebook or at our guidance to know what they need to do. I’m trying to push the agency to be better about providing some guidance that’s easy to find, so that people don’t have to worry about what a particular speech or a particular tweet says.
"From what I've heard, there really is enough regulatory uncertainty that people are avoiding doing their innovation in the U.S. or they're avoiding U.S. investors. And that's obviously not something that we want."
On the other hand, you recently said that the the slow pace of crypto regulation could be a good thing in that it “may actually allow more freedom for the technology to come into its own.”
That’s a view that I heard, and I thought, “Well, that’s an interesting view that sometimes regulatory uncertainty can actually allow things to develop in a way that they wouldn’t if we had very tight guidelines.” So to some extent, yes, the lack of regulation in a particular area can allow innovation to happen. But what I worry about in this space is that we have a whole body of law on the books that’s been on the books for a long time. I think there’s a real need for us to try to wrestle with how existing law applies to this new space. To some extent, there’s not that much new in the sense that if you go out and you raise money, we have laws and regulations that cover how you are allowed to do that, but there’s some other aspects of this space that are a little more challenging.
And from what I’ve heard, there really is enough regulatory uncertainty that people are avoiding doing their innovation in the U.S. or they’re avoiding U.S. investors. And that’s obviously not something that we want. We don’t want to scare people off with the lack of regulatory clarity.
You recently cited the blockchain company Basis, which in December announced that it was shutting down operations because of the difficulty of complying with security regulations. Would you say that you have sympathy for companies like Basis?
Again, I don’t want to don’t want to opine on any particular company or any project, but what I am concerned about is when people have a plan and an idea for solving a problem and then they run up against your securities laws and say “Our solution just won’t work”—and the reason it just won’t work is because you can’t make it work in a securities framework. Then I think it’s worth us sitting down and saying, “Okay, is it right that our securities laws are preventing this from moving forward?” Or “Is there something that we need to do to say, ‘No, this should be able to move forward, and so we need to make some adjustments in our securities laws’?” When I see something like that, I have to ask those questions.
The SEC is about to review two bitcoin ETF proposals. You’ve warned in the past “Don’t hold your breath” as to when the SEC will approve a crypto ETF. Do you find this uncertainty frustrating?
I do, because I would have approved the last exchange-traded product, the Winklevoss one. That’s why I dissented. There are other applications that are in with us or have been in with us, and I’m not expressing any opinion on whether one or another is better. But I think if they meet the standards in our in our statutory and regulatory framework, then we should approve them.
"[The SEC needs] to make real strides to move past our legacy of being unwilling to tolerate innovation."
How far apart are you from the other SEC commissioners when it comes to crypto?
I don’t want to speak to what others think. Some of them have spoken publicly, and you can kind of get a sense of where folks are from their public statements. And again, for me, it’s more a general concern about how the SEC has approached innovation historically and into the present, which is not very well. I think I’m always going to have a concern about that. We need to make real strides to move past our legacy of being unwilling to tolerate innovation. Even in a much more mainstream part of what we’re working on, we can be extremely slow to allow innovation to happen. If you look at exchange-traded funds, which have been around for a quarter of a century, we’re just now getting around to doing a regulatory framework for them. I’m not even talking about crypto exchange-traded funds, just regular exchange-traded funds.
William Hinman, head of the Division of Corporation Finance at the SEC, said last summer that bitcoin and ether are not securities but that many ICOs are securities. Do you agree with that assessment?
I can’t say that I’ve seen the entire landscape, but a lot of what we’ve seen looks a lot like just regular fundraising but done under the ICO label, and so to the extent that that’s what’s going on, it looks just like any other securities offering. So I would say that probably those fit within the securities offering bucket.
What about bitcoin and ether?
I don’t want to speak to any particular cryptocurrency just because I can’t do that. Part of what I’ve been trying to push for is to have the agency put out some clear guidelines so that it would be obvious to everyone which side of the line things fall on. I mean you’re always going to have gray areas, but for most things, it shouldn’t be gray. You should know “Okay, if we set up our project this way, if we raise money this way, then we’ll be on one side or the other of the line.”
What would it take to get these clear guidelines into place?
There are a couple different ways to go about it. The staff is working on guidance. So that’ll be helpful. But I think also people can come in and ask for no-action relief, which is if you have a project and you want to do an offering and you want to know whether or not you’re going to be considered a securities offering or not, you can come in to us and you can say, “Hey, here’s what we plan to do.” You lay out the parameters, and then the staff can come back and say, “We’re not going to recommend an enforcement action if you do it as you said you would do it.”
That’s staff-level though, and the guidance that’s been talked about is staff-level. I would prefer to see commission-level guidance. I’m still talking to people, so I’m still trying to collect ideas on what that guidance should look like. Should it be a safe harbor? Should it be explaining better how the Howey Test applies in this area? Should it be explaining along the lines of what Director Hinman did, to weigh out some factors that suggest at which point something is no longer going to be treated as a security? I don’t know what the substance of the guidance should be, but I certainly welcome people’s input as I’m thinking through that.
Is there any timeline for when there might be clear guidelines?
As I said, the staff is working on their guidance, and I expect to see that sometime relatively soon, but I don’t have a prediction on timing.
"My message is one of 'Hold us accountable, but also be accountable yourself.'"
A lot of people in the crypto space have a deep mistrust of government. What would you say to reassure them about the SEC?
It’s always good to be skeptical of things. Just like anything else in the human sphere, government isn’t perfect. What it is good for people to know is that I work with a lot of people who are really dedicated to the mission of protecting investors and ensuring that markets function well. I think that provides some reassurance to people, but I do think that it’s important to engage with the SEC because we’re the regulator—at least one regulator—in the space, and to engage in a productive way.
But at the same time, it’s important that people who are working in this area remember that they need also to be skeptical in their own decisions about where to invest their money. So if someone just sends in money without asking questions of the person to whom that money is being sent or the group of people to whom money is being sent, and then loses money and expects the SEC to get that money back—don’t necessarily assume that we can do that. My message is one of “Hold us accountable, but also be accountable yourself.”
What are some of the biggest misconceptions about the SEC and its approach to cryptocurrency?
We have a commission with five commissioners—we’re now down to four, but typically when we’re at full strength, there are five of us—and we’re the ones who make the ultimate decisions, but we also have a big staff and we’ve delegated some authority to the staff. And so some decisions come out and they’re actually staff-level decisions, or some speeches come out and it’s a staff-level speech. So Director Hinman is a member of the staff. What he says is important, but it doesn’t necessarily bind me, as a commissioner, or the rest of the commission. I think that’s something that’s been quite confusing for people.
And the other thing I would say, and this is not specific to the SEC, but government moves slowly. Part of that is good, because we have a lot of processes built in that are checks and balances on what we do. So you have to go through economic analysis when we write rules. We go through a process of putting out a notice of what we’re planning to do, getting comments from people, and then writing a final rule. And those things all take time. I think that’s been frustrating for people, and there’s maybe also a misconception that we can just turn on a dime and move fast. And so while I am eager to see us move fast, “fast” is a relative term.
"I like hearing from people who don’t normally interact with the SEC."
I noticed that your Twitter DMs are open. What kind of messages are you getting from the crypto community?
A range of messages, some blaming me for having lost all their money in crypto and some offering to give me their perspectives on what’s going on in crypto. I do prefer if people reach out directly to my office. It’s just an easier way to be able to communicate with people. I’m not particularly quick at responding to the DMs.
But they are open, so I guess you do want to hear some of what people have to say.
I’m always eager to hear from people, and I think people in this space always have interesting thoughts. I like hearing from people who don’t normally interact with the SEC because part of the message I want to get across to people is that if we’re going to put a regulatory framework in place that is going to affect what you can and can’t do, I really want to know what you think.
How does it feel when someone blames you for losing their life savings?
My heart goes out to people who have lost a lot of money, whether it’s in this kind of investment scam or any kind of investment scam, and that’s why I really do encourage people, whether it’s crypto or whether it’s any other kind of investment, to ask lots of questions. And if you can’t get answers and if you don’t understand how something works, my suggestion is that you shouldn’t invest. I’m always sad when people get hurt, but I do think that it can be a good lesson for them and the rest of us that you need to to be skeptical and be careful.
Since you’ve become relatively famous are you ever recognized on the street as Crypto Mom?
No, that’s never happened. Anonymity is just fine.
This interview has been edited and condensed. Photo courtesy the SEC.
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