SEC Commissioner Hester Peirce: The U.S. Crypto Assets regulations are like a game of "there's magma on the ground" in the dark.

Source: Cointelegraph Original: "SEC Commissioner Hester Peirce: U.S. Cryptocurrency Rules are like the game 'There's Lava on the Ground' in the Dark"

Hester Peirce, a commissioner of the U.S. Securities and Exchange Commission (SEC) and head of the cryptocurrency working group, 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 pathways over the lava pit," Peirce said at the "Know Your Custodian" roundtable hosted by the SEC on April 25.

Peirce explained that SEC registrants are forced to handle cryptocurrency-related activities like playing the game "The Floor is Lava." In this game, the players' goal is to jump from one piece of furniture to another without touching the ground. Here, direct contact with cryptocurrency is akin to touching the lava.

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

Peirce stated that, similar to games, due to the unclear regulatory rules, institutions wishing to participate in cryptocurrencies must avoid holding cryptocurrencies directly. "To engage in cryptocurrency-related activities, SEC-registered institutions 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 stated that investment advisors often are unsure which crypto assets meet the definition of securities, which entities can act as qualified custodians, and whether "exercising staking or voting rights" would trigger custodial violations.

"In this regulatory version, what makes it trickier is that the games are almost all conducted in the dark: there is burning legal lava, but no lights to illuminate the way forward."

Peirce also stated that if brokers or alternative trading systems (ATS) are unable to custody or manage crypto assets, it will be difficult to facilitate trading, making the formation of a "sound 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 that they have access to custody options that comply with legal and regulatory requirements.

Uyeda stated 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.

At the same time, newly appointed SEC Chairman Paul Atkins stated that he expects blockchain technology to bring "significant benefits" by improving efficiency, reducing risks, 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 contributed to uncertainty in the market and regulation.

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

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