The commissioner warns investors to avoid lending platforms with overpromising returns, but believes they must be allowed to fail.
Despite her bullish defense of the crypto industry’s growth, Securities and Exchange Commission (SEC) commissioner Hester Peirce – aka “Crypto Mom ” – would never support bailing it out of a crisis. On Friday, she claimed that its lack of such a mechanism is actually a strength of the marketplace.
Letting Bad Companies Fail
In an interview with Forbes, Peirce clarified that the SEC has no authority to be a “systemic risk regulator,” in charge of determining what institutions require a government backstop. However, even if it were, she would support no such measures for the flurry of crypto platforms facing trouble today – especially not if they were irresponsibly over-leveraged.
“I don’t want to come in and say that we’re going to try to figure out a way to bail you out,” she said. “But even if we did, I would not want to use that authority, we really need to let these things play out.”
With crypto prices returning to late 2020-levels, multiple over-leveraged lending platforms and VC firms are desperately searching for liquidity to stay afloat. Firms like Celsius and Babel Finance, for instance, have been forced to disable user withdrawals due to market pullbacks and financial contagion.
BlockFi, too, has now accepted a $250 million loan from FTX, while VC firm Three Arrow Capital considers similar options.
As an SEC member, Peirce is paying attention to those companies that buckle under such stressful conditions, so they can “see how the market operates.” She believes the commission may be more likely to receive tips for handling these circumstances during the bear market.
Peirce has disagreed with chairman Gary Gensler on a number of topics, not least of which is the delayed approval of a Bitcoin spot ETF. However, when it comes to crypto lenders, she’s equally skeptical as he of some of their overpromising returns.
“When you have an attractive return, you need to be asking questions about its associated risks?” she said. “And if you’re not getting answers, then you need to think about whether you want to make that investment.”
The Lummis-Gillibrand Bill
Crypto mom showed cautious optimism over Senate odd-couple Lummis and Gillibrand’s landmark crypto legislation introduced earlier this month. For her, all that matters is that it provides regulatory clarity, even if not in the exact framework that she’s looking for.
The legislation would tilt the jurisdiction of the two largest cryptocurrencies towards the Commodities and Futures Trading Commission, rather than the SEC. Alone, Bitcoin and Ether comprise well over half of the entire digital asset market cap.