SEC Commissioner Hester Perth criticised the current state of US crypto regulations and compared it to the children’s game The Floor Is Lava, where companies must avoid direct contact with crypto assets while navigating unclear regulations. Speaking at the SEC’s “Know Your Custodian” roundtable on April 25, Peirce explained that companies engaged in cryptography must jump from one inadequately defined regulatory space to another. She noted that the regulatory landscape is uncertain and that companies are unsure which crypto assets are eligible for securities and whether activities such as staking and voting rights could cause violations.
Peirce’s analogy shows the confusion that investment advisors face when determining who can qualify as security and act as a qualified custodian for crypto assets. She emphasized that there are no clear guidelines and that businesses operate in the dark. This uncertainty makes it difficult for the Crypto market to develop under the current regulatory framework, Peirce said.
Another SEC commissioner, Mark Weda, reflected Perth’s concerns and proposed that the SEC expand its custody options. Uyeda argued that without proper management services, brokers and alternative trading systems (ATS) would struggle to promote crypto trading and stunt market growth.
Perth also discussed the need for regulations to recognize differences between different digital assets. She argued that while some crypto assets require qualified custodians, others may be suitable for self-reliance. She warned against excessively restrictive regulations that could curb decentralized transactions, and urged the SEC to adopt a framework that acknowledges the nature of different crypto assets.
Her comments came amid a wider debate on crypto regulations. SEC Chairman Paul Atkins has expressed his support for clearer rules to enable the crypto market to grow. Atkins also highlighted the potential benefits of blockchain, including increased efficiency, reduced risk and increased transparency. He emphasized the importance of working with market participants and lawmakers to create a regulatory framework that is consistent with the needs of the crypto industry.
Both Peirce and Atkins criticized their previous leadership under Gary Gensler for contributing to regulatory uncertainty. Peirce explained that as more businesses become involved in crypto, there is an urgent need for clear custody solutions that comply with legal and regulatory standards. She argued that without clear guidelines on management and asset classification, the US crypto market will face challenges as it continues to expand securely. Overall, both Perth and Atkins highlighted the need for a clearer regulatory approach to enable the crypto industry to thrive while protecting investors.