The SEC Commissioner Hester Peirce, affectionately dubbed “CryptoMom” by the crypto community, recently proposed radical new regulation for cryptocurrency projects. Furthermore, this proposal seeks to remove some of the pressure on crypto projects from strict US security laws.
Who is Hester “CryptoMom” Peirce?
Hester Peirce is a well-known name to cryptocurrency supporters. In fact, the SEC Commissioner has previously proven that she is more open to discussing crypto than her colleagues.
Back in August 2018, the Securities and Exchange Commission (SEC) went on to reject a Bitcoin exchange-traded fund (ETF). Peirce, however, did not agree with the decision of the commission. Rather, Peirce sent a public dissent of the decision, stating she “respectfully disagrees” with the SEC on the matter.
Following this, Peirce has been supportive of cryptocurrencies and Bitcoin numerous times. For example, she claims that “there’s no reason not to allow a Bitcoin ETF”. Moreover, the crypto community has taken her support to heart, and affectionately refer to her as “CryptoMom”.
Now, however, it seems Peirce may soon receive even more praise from the cryptocurrency community. Specifically, this relates to a radical new regulation framework for crypto firms.
Peirce announces radical “SEC Rule 195” to aid crypto projects
The official launch of Peirce’s new proposal came during her speech at the International Blockchain Congress in Chicago on February 6th. Peirce’s fresh regulation proposal – known as SEC Rule 195 – seeks to eliminate some of the regulatory pressure for crypto firms.
Specifically, Peirce proposes that this should be done through introducing a three-year grace period for crypto companies. This grace period, or “safe harbor”, would stretch 36 months from the company’s first token sale. Furthermore, it would give companies more time to achieve greater decentralization.
This is essential in order for cryptocurrency startups to pass through some of the SEC’s strict evaluations. The perhaps most notable of these is the Howey Test, a well-known US Supreme Court assessment of whether some transactions are “investment contracts” instead of securities.
Peirce suggests a three-year “safe harbor” grace period
Currently, token sales are generally seen as security offerings. Moreover, firms that offer securities must register with the SEC, so they can be held accountable to investors.
Critics of this system say the burdensome regulatory aspects and strict security laws “stifle” innovation. Peirce’s three years would provide crypto token projects with a “safe harbor” in which the projects could mature.
At the same time, this “safe harbor” would not be entirely immune from government intervention. Peirce notes that there are a myriad of valid reasons to intervene in token projects, such as fraud.
As such, this safe harbor is not a carte blanche for crypto firms. Rather, it simply seeks to lessen the burden of strict US security laws. As Peirce puts it:
“SEC enforcement has played an important role in combating fraud in connection with token sales. The safe harbor would not provide immunity from such actions.”
Observers both celebrate and criticize Peirce’s proposal
Although one should note that Peirce’s proposal is still just that – a proposal – it could have far-reaching consequences. If a majority of the SEC’s other commissioners decides to adopt the proposal, it would create a formal framework for token sales.
Some observers are optimistic, calling Peirce’s proposal “an elegant solution to the most complex legal challenge of this crypto era”. At the same time, however, some are critical.
Bruce Fenton, the founder of Chainstone Labs, suggest Peirce’s proposal comes with some drawbacks. The chief drawback, according to Fenton, is that this proposal could prompt an “ICO 2.0 craze”.
As such, he argues, companies could merely focus on raising money, rather than delivering value to investors. Although it is unclear exactly how Peirce’s radical crypto regulation proposal would practically affect the market, it will be interesting to watch in the coming days and weeks.
Rasmus Pihl is a writer for Toshi Times by day and an avid follower of the blockchain industry by night. Rasmus holds a Bachelor’s Degree in Marketing from the Gothenburg School of Business, Economics, and Law and runs a Swedish marketing consulting firm. Moreover, when he isn’t writing for Toshi Times, traveling, working or changing the world in some other capacity, Rasmus is more than likely caught up in postgraduate studies.