SEC Commissioner Hester Peirce sharply criticized the United States’ approach to cryptocurrency regulation, likening the industry’s predicament to the children’s game “the floor is lava,” where participants must navigate without touching the ground. Speaking at the SEC’s “Know Your Custodian” roundtable on April 25, Peirce argued that firms dealing with crypto assets are forced to leap between poorly defined regulatory spaces, struggling against a backdrop of uncertainty.
Peirce highlighted the profound confusion surrounding the classification of crypto assets—whether they are securities—and the lack of clarity over whether activities like staking or exercising voting rights could lead to regulatory violations. She warned that the absence of definitive guidelines leaves investment advisers and other firms to operate blindly, stifling the development of the crypto market.
Commissioner Mark Uyeda echoed Peirce’s concerns, calling for an expansion of custodial options. Uyeda advocated for permitting state-chartered limited-purpose trust companies to act as crypto custodians, arguing that the lack of robust custodial infrastructure severely hampers brokers and alternative trading systems (ATS) from supporting crypto trading activities, ultimately throttling market growth.
Peirce further urged the SEC to craft regulations that differentiate among digital assets rather than treating them uniformly. She asserted that while some crypto assets warrant oversight by qualified custodians, others may be better suited for self-custody solutions. Peirce cautioned against overly rigid rules that could suppress decentralized transactions and innovation, pressing for a framework that reflects the varied nature of digital assets.
Her remarks come amid intensifying debate over crypto oversight. SEC Chairman Paul Atkins also voiced support for establishing clearer regulatory standards to foster the crypto industry’s expansion. Atkins underscored blockchain’s potential to deliver greater efficiency, reduce systemic risk, and enhance transparency, emphasizing the need for collaboration with lawmakers and market participants to build a supportive regulatory environment.
Both Peirce and Atkins leveled criticism at the previous leadership under former Chairman Gary Gensler, blaming it for deepening regulatory ambiguity. Peirce stressed that with more firms entering the crypto space, there is an urgent need for clear custodial rules and asset classifications to ensure the sector can expand securely and responsibly. Overall, both commissioners called for a more defined regulatory approach—one that nurtures crypto innovation while safeguarding investors.
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