Crypto is ‘Helping to Nudge Reassessment’ on Privacy

Regulators at the US Securities and Exchange Commission met with cryptocurrency industry leaders on Monday to discuss financial surveillance and user privacy, as part of the agency’s ongoing efforts to shape digital asset oversight.

In opening remarks at the roundtable, SEC Commissioner Hester Peirce, who also heads the agency’s crypto task force, joined Chair Paul Atkins and Commissioner Mark Uyeda in outlining how regulators could balance investor protection with privacy considerations as blockchain-based financial activity expands.

Atkins said crypto had the potential to become “the most powerful financial surveillance architecture ever invented,” depending on how the US government handled regulation. He cited the SEC’s previous approach, “treating every wallet like a broker,” requiring more transactions to be reported.

Peirce echoed Atkins in her statement, suggesting that regulators need to “rethink when and how financial transactions are surveilled” as the crypto market grows.

“Our national degradation of financial privacy and the rules that embody it are overdue for a change, and crypto is helping to nudge a reassessment,” said Peirce, adding that crypto “opens new possibilities for transactions without financial intermediaries that are central to our existing financial surveillance paradigm […].” She continued:

“On the other hand, as has been mentioned, the public blockchains on which many crypto transactions take place are viewable by everyone, which creates a demand for privacy-protecting tools.”

The surveillance and privacy roundtable, which included representatives from the privacy token Zcash (ZEC), the Blockchain Association and the Crypto Council for Innovation, was the task force’s sixth event discussing various aspects of digital asset regulation and policy since Peirce launched the group in January.

Many in the cryptocurrency industry have sounded the alarm about privacy as the market continues to grow and regulators, lawmakers and courts work to address concerns.

Related: US SEC’s Crenshaw takes aim at crypto in final weeks at agency

Market structure to revamp the SEC’s authority over digital assets

Amid the roundtable discussion and the imminent departure of SEC Commissioner Caroline Crenshaw, lawmakers in the US Senate are running out of time to address legislation to establish a comprehensive digital asset market structure before 2026.

Early drafts of the bill indicated that it could grant the Commodity Futures Trading Commission greater authority over cryptocurrency and alter the SEC’s regulatory priorities.

After a market structure bill, named the CLARITY Act, passed the House of Representatives in July, members of the US Senate have been engaged in negotiations to get the legislation onto the floor for a vote before the end of the year. As of Monday, this goal by Republican leaders appeared unlikely to be achieved.