HESTER PEIRCE, SEC COMMISSIONER, NAILS IT

Blockchain Coinvestors Newsletter

Vol. 3, No. 22, October 2021

Hester Peirce, SEC Commissioner, Nails It.

We don't usually dig into the writings and speeches of US lawmakers. Unless you have a good legal mind, it's easy to get lost. Nowhere more so when US financial lawmakers are opining on innovation and the future of financial services. Not that the two present an oxymoron. Rather, we just wish the regulators would accelerate, not slow down our inevitable journey to the future of digital monies and digital assets to the benefit of all.

However, on October 8th, 2021, we heard a top regulator give a speech that absolutely captured our perspective and viewpoint in the most accurate of ways, and so in this newsletter, we not only want to share parts of it with you, but we want to encourage each of you to read the full transcript by clicking here.

Hester Peirce - Commissioner US Securities and Exchange Commission (SEC)

To paraphrase Wikipedia, Hester Maria Peirce is an American lawyer specializing in financial market regulation. Peirce is serving as a Commissioner on the Securities and Exchange Commission (SEC). Peirce was sworn in on January 11, 2018, for a term ending in 2020, and her second term expires in 2025. Peirce is a former staff member of the United States Senate Committee on Banking, Housing, and Urban Affairs and of the SEC. In 2016, she was nominated by President Barack Obama for Commissioner on the SEC, but the United States Senate did not act on her nomination. 

So as you can see, President's from both sides of the aisle have thought her worthy of leading the country into the digital future of financial services.

Texas Blockchain Summit

This month saw a number of important announcements coming from the Texas Blockchain Summit, and it was as the closing remarks for the conference that Hester Peirce gave her remarkable speech. Before she got up to speak, the Commissioner of the Texas Department of Banking had just issued a letter authorizing all Texas state-chartered banks to custody cryptocurrency. Throughout the summit attendees had been discussing Texas's opportunity to become the world's leading Bitcoin mining center because of China’s decision to cancel bitcoin mining and had been exploring the possibility of eliminating Texas flared gas (one of the largest sources of carbon in the environment) by using it to drive Bitcoin mining rigs. Texas Governor Greg Abbott emphasized his state's position by declaring “Texas will be the crypto leader. Cryptocurrency is now coming to Texas grocery stores” referring to the decision by grocery giant H-E-B to put cryptocurrency kiosks into their stores.

Now it was time to bring the conference to a close.

Lawless in Austin

The speech is entitled Lawless in Austin and it goes a long way to summarizing the state of play in blockchain and crypto regulation, provides a reframing of the moment we are living in with regard to a transition towards a brighter future of digital monies and assets, and makes some suggestions about the road forward.  

A few quotes from Commissioner Peirce's 3,900 words will illustrate why we are so set on encouraging each of you to read the transcript: 

  • "Chair Gensler’s habit of calling the cryptoverse the “Wild West” has captured my attention. He is not alone in referring to the crypto landscape as the Wild West, a place we imagine to have been lawless—a society in which the gunslinger with the best reflexes and worst morals wins at everyone else’s expense."

  • "Today, however, I will offer a different take on the Wild West and, with that picture in mind, suggest a way forward in crypto regulation."

  • "The West of the past called to people who were chafing against the staid and stale societies of the East and looking to throw themselves into building a new future in a more promising place. The Western frontier was a place for the adventurous, the rough around the edges, the idealists, the free-thinkers, and the restless."

  • "John Soule wrote in the Indiana Express in 1851, “Go west, young man.” Horace Greeley picked up this phrase fifteen years later, when he wrote: “Washington is not a place to live in. The rents are high, the food is bad, the dust is disgusting and the morals are deplorable. Go West, young man, go West and grow up with the country.”

  • "The crypto frontier, like the Wild West, appears pretty wild at first glance: home to lots of codeslingers and speculators and some hucksters too, this new West also has its inter- and intra-protocol fights, friendships forged through shared difficulties and successes, colorful personalities, passions, dreams, hardships, spectacular failures, and remarkable victories. But as in the West of the past, there is order and discipline in all of that rough and tumble."

  • "Because crypto is built on code, the code itself serves as a governor of conduct."

  • "Decentralized communities collectively figure out how to deal with unanticipated problems. These cooperative and competitive disciplining mechanisms have helped to clean up the crypto frontier though there is more work to be done. The persistence of both self-regulation and calls by the crypto community for clarity from government regulators suggest that lawlessness is not the prevailing culture of the crypto frontier."

  • "Ironically, our gunslinging ways in the old, supposedly staid, government regulatory world back East are causing people to question our commitment to the rule of law."

  • "It is not too late for government regulators to set clear rules that respect the unique attributes and challenges of life on the crypto frontier."

  • "A fundamental area of conflict between the SEC and the public is how much legal clarity there is around digital assets. The safe harbor I proposed for token distribution events acknowledges there is uncertainty about when crypto asset offerings implicate the securities laws, but the prevailing attitude at the SEC is that there is clarity, so why bother with a safe harbor?"

  • "The idea that there is clarity as to when crypto assets are securities must come as a surprise to the lawyers advising crypto projects that have struggled with this issue for years."

  • "Embedded within the negative Wild West analogy for the crypto-frontier is a concern that unwitting and unwilling investors are being harmed by participating in the crypto markets."

  • "As C.S. Lewis noted, “Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive . . .This very kindness stings with intolerable insult.”

  • "The good actors want to know which digital assets are securities so they can figure out how to comply with the securities laws, but we have done little during my nearly four years on the Commission to explain what that would look like. We simply have not allowed staff the latitude to consider the hard questions around how crypto can operate within the securities framework."

  • "The way forward is not to drag entities into the Commission through enforcement actions and brute force them into a regulatory regime that is not actually well-suited for them. Rather, we should take a methodical approach, one that provides answers to the key questions to which market participants need answers."

  • "The stakes are high because the government is riding into crypto town with the promise that it can do a better job than the existing informal disciplinary mechanisms."

  • "I might approach this whole endeavor with a less strict hand than some of my fellow regulators, but the real question is not what I or any other regulator wants, but what you the people—the intended beneficiaries of this regulation—want. I am eager to see what you accomplish on the crypto frontier once we set some sensible, clear regulatory parameters."

These are our favorite excerpts from Hester Peirce's speech.

Which are yours?

Again, we want to encourage each of you to read the full transcript by clicking here.

Thank you for reading.

Alison Davis
Matthew C. Le Merle

ABOUT BLOCKCHAIN COINVESTORS

Launched in 2014, our goal is to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and crypto projects. The strategy is now in its 8th year and has to date invested in more than 30 pure play blockchain venture funds in the Americas, Asia and Europe; and in a combined portfolio of 300+ blockchain and crypto projects including 30+ blockchain unicorns. Our funds rank in the top decile amongst all funds in their respective categories on both Pitchbook and Preqin. Headquartered in San Francisco with a presence in Grand Cayman, London, New York, Zug and Zurich, the alternative investment management firm was co-founded by Alison Davis and Matthew Le Merle. 

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While the two funds are substantially the same, there may be some funds and investments that are only available in the Qualified Purchaser vehicle. Blockchain Coinvestors funds can take investments via IRAs. We support several providers, including AlgoIRA, Kingdom Trust, Millennium Trust Company and Pacific Premier Trust Company (Pensco).

Blockchain Coinvestors has launched an Early Stage Token Fund that is open to investors who meet the Qualified Client definition with a minimum subscription level of $250,000 at the discretion of the Manager. This Fund expects to have access to early stage tokenized projects that few others can access through its relationships with other leading blockchain investors. The Fund will target 20 to 30 SAFTs as well as positions in traded tokens when excess capital is on hand. This is a continuation of the direct token investing strategy of the Fund Manager that has included private stage investments in Acala, Filecoin, NEAR, Polkadot, Structure, and others.

Please visit the Blockchain Coinvestors website to learn more about our offerings. You can also reach our Investor Relations team directly at ir@blockchaincoinvestors.com.

BLOCKCHAIN COINVESTORS SWISS

We are excited to announce that Blockchain Coinvestors Funds are now available through Swiss certificates for those of our non-US investors who prefer this approach. The underlying fund is the same, however, our Zurich based team at Blockchain Coinvestors Swiss, who will introduce in future weeks, can provide detailed information regarding this investment option. Email us at mlemerle@fifthera.com to learn more.

LINQTO
'Private Investing Made Simple'

While our funds are only available to Accredited Investors who are also Qualified Clients we believe in the democratization of investment access to all investors and look forward to that day. In the interim, we have partnered with Linqto which is an easy to use Mobile and Web app that makes it exceptionally easy to invest into attractive opportunities. The provide access to Accredited not Qualified Client investors as well as much lower minimums. Go to Linqto.com or download the app from your App store to use this approach.

BLOCKCHAIN COINVESTORS ANGELLIST SYNDICATE

Continuing the theme of the democratization of investing, we have a rapidly growing Blockchain Coinvestors syndicate on AngelList providing access to selected coinvestments. Please join us and our partner Lou Kerner on AngelList.

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REGISTER NOW FOR UPCOMING WEBINARS AND CALLS

Our investment team hosts bi-monthly webinars and calls to help educate our community about the Fifth Era, fintech, blockchain and crypto. We discuss important trends, tailwinds and investment themes including what we have learned and how we are using our knowledge to inform our own investment thesis and actions. Below is a list of upcoming webinars for which you can register by clicking the links:

Investing in Early Stage Tokens

- November 1st, 7:00am PST

- November 1st, 12:00pm PST

2022 Blockchain Predictions

- November 15th, 7:00am PST

- November 15th, 12:00pm PST

Meet the Blockchain Unicorns-Year End 2021

- December 6th, 7:00am PST

- December 6th, 12:00pm PST

Blockchain Coinvestors 2021 Wrap-Up

- December 20th, 7:00am PST

- December 20th, 12:00pm PST


Recordings of past webinars and calls can be found at www.fifthera.com/webinars.

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