The commissioner urges investors to beware of lending platforms with too optimistic return projections but says such platforms must be allowed to fail.
Despite her optimistic defence of the crypto industry’s expansion, Securities and Exchange Commission (SEC) commissioner Hester Peirce – sometimes known as “Crypto Mom” – would never support rescuing it from a catastrophe. She said on Friday that the absence of such a mechanism is really a market strength.
Letting Poor Businesses Fail
Peirce highlighted in an interview with Forbes that the SEC lacks the ability to be a “systemic risk regulator” responsible for assessing which institutions deserve a government backup. However, even if this were the case, she would not support such actions for the multitude of crypto platforms in problems today, particularly if they were recklessly overleveraged.
She said, “I don’t want to come in and say we’re going to find out a way to bail you out.” “But even if we had that power, I wouldn’t use it; we need to let these events play out.”
Multiple overleveraged loan platforms and VC companies are frantically scrambling for money to remain afloat as crypto values return to late-2020 levels. Due to market fluctuations and financial contagion, companies such as Celsius and Babel Finance have been compelled to suspend user withdrawals.
BlockFi has now also taken a $250 million loan from FTX, while venture capital company Three Arrow Capital evaluates comparable possibilities.
As a member of the SEC, Peirce observes firms that fail under such difficult situations in order to “understand how the market functions.” During a bad market, she feels the commission is more likely to get advice on how to handle these conditions.
Peirce and chairman Gary Gensler differ on a number of issues, including the postponed authorization of a Bitcoin spot ETF. However, when it refers to crypto lenders, she shares his scepticism over their too optimistic returns.
She said, “When you have an enticing return, you must inquire about the accompanying hazards.” And if you don’t receive answers, you should consider if you want to make that investment.