Securities and Exchange Commission (SEC) commissioner Hester Peirce, who has earned the moniker “Crypto Mom” for her friendly stance on cryptocurrencies, told a MarketWatch virtual conference that any efforts to ban cryptocurrencies such as Bitcoin would essentially be doomed to failure and any government that tried would be “foolish.”
Investment managers have warned that a key risk to cryptocurrencies as a viable asset class is that the government could simply ban them.
Ray Dalio, billionaire investor and founder of Bridgewater Associates, told Yahoo Finance in a recent interview that there’s “a good probability” that governments around the world would ban Bitcoin and other cryptocurrencies, much as the U.S. government once banned private holdings of gold.
“Every country treasures its monopoly on controlling the supply and demand. They don’t want other monies to be operating or competing, because things can get out of control. They outlawed gold, that’s why also outlawing Bitcoin is a good probability,” Dalio said.
India is said to be mulling a law that would ban cryptocurrencies in a bid to replace them with a central bank digital currency (CBDC), with a senior government official telling Reuters that the bill would make possession, issuance, mining, trading, and transferring of crypto-assets a crime.
Some have argued that the crypto-ban ship has sailed, however, a theme that was taken up by Avi Salzman, senior writer at Barron’s, when asking Peirce to weigh in on the matter.
“Are we past that point? Are there so many nodes running around the world that the notion that the government could ban Bitcoin is no longer a possibility?” he asked Peirce.
“I think we were past that point very early on because you’d have to shut down the Internet,” Peirce said, adding, “I don’t see how you could ban it.”
“You can certainly make the effort, a government could say ‘it’s not allowed here’ but people would still be able to do it and it would be very hard to stop people from doing it,” she said, adding, “I think that it would be a foolish thing for the government to try to do that.”
“A bigger problem is that we would be missing out on the innovation around Bitcoin and other digital assets if we decided to try to stop them,” she added.
‘Behind the Curve’
Peirce was also asked about the U.S. government’s approach to regulating the cryptocurrency space and whether she thinks more crypto-friendly measures are in the pipeline.
“I think we’re certainly behind the curve,” she said of U.S. efforts to regulating cryptocurrencies.
“We’ve seen other countries take a much more, I would say, productive approach to regulating crypto in the sense that … it’s not saying that we shouldn’t have any regulations at all, they’ve just been saying, ‘let’s build a regulatory framework that works for crypto.'”
“Our approach has been much more of a ‘say no and tell people to wait’ approach,” she said.
“We really need to turn that around. Be willing to work to build a framework that is appropriate for this industry. And I’m optimistic that with a new chairman coming in who has deep knowledge of these markets, the crypto markets, that is something we could do together is build a good regulatory framework.”
Peirce was referring to Gary Gensler, whose nomination to head the SEC was approved by the Senate Committee on Banking, Housing, and Urban Affairs, in late March, with a confirmation vote by the full Senate expected in the coming weeks.
Other countries have been moving ahead not only with their regulatory frameworks for crypto-assets but in rolling out their central bank-issued digital currencies. China’s central bank is aiming to become the first major monetary institution to issue a CBDC, part of its push to internationalize the yuan and reduce dependence on the dollar-dominated global banking system.
While Peirce acknowledged that China’s efforts to adopt a digital yuan were well advanced, she said its poor privacy controls would limit uptake.
“A country like China that has surveillance that sort of is part of the package along with the central bank digital currency, I’m not sure how much of a competitor that would be for either private market digital currencies or a digital currency that the United States could develop, that the Fed could develop in the U.S.,” she said.
‘Experimenting with Technology’
Jerome Powell, the head of the Federal Reserve, has said it is more important that the Fed gets its approach to a digital dollar right rather than leading the pack.
“We’re not in a mode of trying to make a decision at this point,” he said in recent remarks to a virtual summit hosted by the Bank for International Settlements. “We are experimenting with technology.”
Powell added that given the dollar’s critical role as the world’s leading reserve currency, the Fed has “an obligation to be on the cutting edge” of understanding the costs and benefits of a CBDC.
There are risks and benefits to digital currencies, the Fed chair said. The benefits include a “more efficient, more inclusive payment system,” while the risks involve cyber-attacks, money laundering, and terrorist financing. There is also the risk that a digital currency could be held by individuals electronically and could therefore bypass banks.
Rep. Warren Davidson (R-Ohio), a member of the House Financial Services Committee, warned of risks to personal liberties if the architects of the digital dollar were to adopt measures similar to China’s digital currency.
“China’s using their monetary system as a system of control,” Davidson said. “And they’re proposing to link their central bank digital currency to their social credit system where they know virtually everything about everyone—they could filter all the transactions and essentially say, yeah, we’re not going to bank those people.”
“Sadly, in the United States of America, there are people that look at that and go, ‘Oh, that’s great, we would love to have it.’ That’s scary,” Davidson told NTD News in an interview.
Peirce said that, while the Fed mulls adopting a digital dollar, there are already private market alternatives in the form of stablecoins, cryptocurrencies whose volatility is reduced by being pegged to other assets, like a basket of fiat currencies or to exchange-traded commodities, such as precious metals.
“It’s something the Fed is going to look at but I think that even if it were to go down that path it would take some time, so I think we should really look at what’s happening in the private market,” she said.
Peirce was also asked about the prospect that the SEC might finally approve an exchange-traded fund (ETF) with a cryptocurrency like Bitcoin as the underlying asset.
“Well, that is the big question that everyone has and my answer is the one that I’ve had for the last three years, which is that I don’t know,” she said.