SEC Commissioner Hester Pierce released a speech last week on the official SEC.gov website. In it, she goes over some of her thoughts on why she is in favor of bitcoin ETF’s and the opening up of investor choice. Her key message is that the SEC should not be like a “helicopter mother” and instead be a “free-range mother” that allows its children to make their own mistakes and learn lessons from it.
CryptoMom Stands for Freedom
SEC Commissioner Hester Peirce came to prominence in the crypto world when she stood up in defense of a potential bitcoin ETF. While Peirce is not necessarily an outspoken bitcoin proponent, she instead has revealed herself to be wholly in favor of personal choice.
Following the denial of bitcoin ETF’s from several applicants, Peirce came forward and condemned the denials.
In response to her support of a bitcoin ETF, the cryptocurrency community at large has taken quite a shine to her, with some calling her CryptoMom, a term that she finds quite endearing. Peirce’s Twitter account went from a handful to many thousands of followers, and her comments and opinions have been cited multiple times in various media outlets.
Hester Peirce, Image from Wikipedia
Being a Better Parent
In her speech, Peirce uses the example of two different styles of parenting to explain the approach the SEC has taken in the past. One method known euphemistically as helicopter parenting is where parents hover over their children and monitor and control their every move. This type of parenting became more popular in the 90s and 2000’s and continues to become more prevalent today in common society.
Helicopter parenting has a number of critics that claim that it stunts the growth of children with the constant presence of a parent nearby. This allows the children to remain naïve and to rely on their parents for everything. Dr. Joel Young wrote in a piece for Psychology Today: “A new study suggests that helicopter parenting can trigger anxiety in certain kids, adding to a small pile of data suggesting that helicopter parenting stunts kids’ emotional and cognitive development.”
In light of this, an alternative parenting style known as free-range parenting emerged. In free-range parenting, children are given much more freedom and independence, with the idea being that they will mature faster due to needing to be more self-reliant. This parenting style also has critics which claim that it could expose children to unwanted danger or risk such as from child predators or accidents.
Peirce: Be a Free-Range Parent, SEC
In her lengthy speech, Peirce wrote:
When investor risk-taking leads to investor losses, regulators inevitably face criticism for allowing investors to take risks that, in hindsight, appear to have offered nothing but downside. We know what inevitably follows—a chorus of critics insisting that “If you, Ms. Regulator, had simply told people they were not allowed to engage in risky behavior, nobody would have gotten hurt!”
In other words, regulators fear that if they allow risky investments to become available, that they will be personally blamed if losses occur. This, Peirce notes, leads to a mindset of “suspicion of risk-taking and regulatory mindset that too often presumes that innovations designed to provide greater access to risk-taking assets are threats, both to our reputations and investor safety.”
But what are regulators to do? Do they suspend all potentially risky investments, or throw the gates wide-open and allow anything and everything? Peirce suggests that an approach of excessive caution will still lead to investor losses due to forcing them out of the potential upside. Peirce stated that no matter how cautious the SEC is, “something always goes wrong. Companies fail. Fraudsters cheat. Nature strikes. Market downturns happen.” In other words, no amount of caution can protect investors from every possible loss scenario.
The opposite also needs to be considered. That being, what is the cost to the common investor if they are prohibited from entering a risky, yet valuable, asset class like digital currencies? This too, Pierce notes, is “potentially very threatening to investor welfare.”
This is perhaps where cryptocurrency can best shine. Pierce further notes that today, many assets are becoming correlated when they weren’t before. And so there is a growing desire for new asset types that are not correlated to other market movements and thus can provide more diversification. This, according to Peirce, can be an excellent use case for cryptocurrency investment.
In her speech, Peirce also notes that she is not a “technologist or trader” and that she does not have “the capacity to the process the likelihood of any cryptocurrencies marketplace success”. However, the lengthy commentary seems to hold the general theme that while cryptocurrencies will always have risk, it would be more harmful to the investing public to restrict their access to novel assets than it would be to allow them to enter regulated markets in a meaningful way such as through an ETF.
It is in this writer’s opinion that cryptocurrency ETF’s of all sorts are inevitable. That’s because there is simply too much money on the line. Those who have the capacity to offer such a product that stand to make millions or even billions running it are far too numerous.
These investment and banking companies will simply apply and reapply and appeal until eventually the first of what will likely be many cryptocurrency ETF’s finally becomes a reality.
It’s also encouraging to see an SEC Commissioner like Hester Peirce who is firmly on the side of freedom and personal choice, and is willing to allow the investing public to make their own decisions, or make their own mistakes, whichever it may be.