SEC Commissioner Hester Peirce, also head of the crypto task force, has likened navigating U.S. crypto regulations to playing the childhood game “the floor is lava”—but in complete darkness. Peirce’s remarks highlight the ongoing confusion and regulatory gaps facing firms attempting to engage with crypto assets in the United States.
SEC’s Obstacle Course for Crypto Firms
Speaking at the SEC’s “Know Your Custodian” roundtable on April 25, Peirce emphasized how SEC-registered firms must jump between uncertain legal frameworks while avoiding direct contact with crypto assets, due to unclear guidance.
“To engage in crypto-related activities, SEC-registrants have had to hop from one poorly illuminated regulatory space to the next, all while ensuring that they never touch any crypto asset,” she said.
The "Lava" is Crypto: Lack of Clarity
Peirce criticized the current state of U.S. crypto oversight:
- Firms don't know which crypto assets qualify as securities.
- Uncertainty over what counts as qualified custodians.
- Ambiguity on whether staking or voting rights trigger custody violations.
“The twist in the regulatory version is that it is largely played in the dark: burning legal lava and no lamps to illuminate the way.”
Market Development Stifled by Custody Issues
Peirce warned that brokers and Alternative Trading Systems (ATS) unable to custody crypto can’t efficiently facilitate crypto trading, hindering the development of a robust market.
Commissioner Mark Uyeda echoed similar concerns, advocating for allowing state-chartered limited-purpose trust companies to act as qualified custodians for crypto.
A Call for Clear Regulatory Frameworks
Newly sworn-in SEC Chair Paul Atkins acknowledged the need for:
- Clear rules for digital assets.
- A shift away from the uncertainty under former chair Gary Gensler.
Atkins emphasized the potential for blockchain to deliver efficiency, risk mitigation, and cost savings while committing to a fit-for-purpose framework for crypto assets.
“I look forward to engaging with market participants and working with colleagues in President Trump’s administration and Congress to establish a rational fit-for-purpose framework for crypto assets,” Atkins stated.
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