Source: Cointelegraph
Original: “SEC Commissioner Hester Peirce: U.S. Cryptocurrency Rules Are Like Playing 'The Floor is Lava' in the Dark”

U.S. Securities and Exchange Commission (SEC) Commissioner and head of the cryptocurrency working group Hester Peirce stated that the operations of U.S. financial institutions in the cryptocurrency space are akin to playing the children's game "The Floor is Lava" in the dark.

"It’s time to end this game. We need to turn on the lights and build some bridges over the lava pits," Peirce said at the SEC's "Know Your Custodian" roundtable on April 25.

Peirce explained that SEC-registered entities are forced to navigate cryptocurrency-related activities as if they were playing "The Floor is Lava." In this game, players aim to jump from one piece of furniture to another without touching the ground. Here, direct contact with cryptocurrency is equivalent to touching lava.

She said, "The Washington version of this game is how we regulate crypto assets, particularly the regulation of crypto asset custody."

Peirce noted that, similar to the game, due to unclear regulatory rules, institutions wishing to engage in cryptocurrency must avoid directly holding cryptocurrencies. "To engage in cryptocurrency-related activities, SEC-registered entities have to jump from one poorly lit regulatory space to another while ensuring they never come into contact with any crypto assets," Peirce said.

Peirce mentioned that investment advisors often are uncertain about which crypto assets meet the definition of securities, which entities can act as qualified custodians, and whether "exercising staking or voting rights" would trigger custody violations.

"What’s trickier in this regulatory version is that the game is almost entirely played in the dark: there’s burning legal lava, but no lights illuminating the path ahead."

Peirce also stated that if brokers or alternative trading systems (ATS) cannot custody or manage crypto assets, it will be difficult to facilitate trading, making the formation of a "healthy market" less likely.

SEC Commissioner Mark Uyeda also expressed similar views at the meeting. He stated that as more SEC-registered entities begin to engage with crypto assets, it is crucial to ensure they have access to custody options that meet legal and regulatory requirements.

Uyeda suggested that the SEC should consider allowing advisors to use "state-chartered limited purpose trust companies" that are authorized to hold crypto assets as qualified custodians.

Meanwhile, newly appointed SEC Chairman Paul Atkins indicated that he expects blockchain technology to bring "significant benefits" by improving efficiency, reducing risk, increasing transparency, and cutting costs.

He reiterated that one of his goals at the SEC is to establish a "clear regulatory path" for digital assets, implying that the SEC under former Chairman Gary Gensler created uncertainty in the market and regulation.

"I look forward to engaging with market participants and working with colleagues from the Trump administration and Congress to establish a reasonable and applicable framework for crypto assets," Atkins said.

Related: SEC Chairman Mentions "Significant Benefits" at the Agency's Third Cryptocurrency Roundtable

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