Hester Peirce Not Pleased With SEC Crypto Regulatory Efforts

The Securities and Exchange Commission (SEC) announced on Thursday that enforcement action against cryptocurrency exchange operator Kraken will result in a $30 million enforcement action and the company discontinuing staking.

“Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws,” said SEC Chair Gary Gensler. “Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.”

While the SEC frames it as a win for investors, Commissioner Hester Peirce disagrees, believing that the commission isn’t approaching crypto regulation the right way. She added that unregistered offerings and subsequent sales of those securities — one of the points of contention in the Kraken matter — aren’t the primary concerns the regulatory agency should be focusing on with crypto.

“Most concerning, though, is that our solution to a registration violation is to shut down entirely a program that has served people well. The program will no longer be available in the United States, and Kraken is enjoined from ever offering a staking service in the United States, registered or not. A paternalistic and lazy regulator settles on a solution like the one in this settlement: do not initiate a public process to develop a workable registration process that provides valuable information to investors, just shut it down,” said Peirce in a statement.

For those in the exchange traded funds industry, Peirce is a familiar name because she’s one of the commissioners that’s been vocal in supporting a bitcoin-backed ETF — a product that continues to evade U.S. market participants.

Last June, she took issue with the SEC’s handling of spot bitcoin ETFs, saying that the commission erected hurdles to such products being approved.

“The Commission has added crypto-specific hurdles to what used to be fairly straightforward processes for approving these pooled investment vehicles—whether exchange-traded funds (ETFs) under the Investment Company Act of 1940 (1940 Act) or commodity-based exchange-traded products (ETPs) under the Securities Act of 1933 (Securities Act). Indeed, although in the past eight months both ETFs and ETPs based on bitcoin futures have begun trading, the Commission has continued to disapprove ETPs based on the spot bitcoin market,” she said.

Regarding the Kraken matter, Peirce said it should serve as an impetus for more uniformity in terms of SEC regulations of crypto.

“More transparency around crypto-staking programs like Kraken’s might well be a good thing. However, whether we need a uniform regulatory solution and if that regulatory solution is best provided by a regulator that is hostile to crypto, in the form of an enforcement action, is less clear,” concluded Peirce.

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