As the SEC continues its shift from crypto adversary to potential ally, one question looms large: could the Commission's embrace of digital assets endanger the very markets it's supposed to protect?

According to Commissioner Hester Peirce, the answer lies in staying in the agency's lane.

"I certainly think it's good for a regulator to understand its jurisdiction, and not to try to act outside of its jurisdiction," she said in a recent interview with Coinage, explaining the new regulatory-light approach the agency is taking towards crypto. "There are a lot of bad things that happen outside of the SEC's jurisdiction, and a lot of them really give me concern and I worry about them. But that doesn't mean it's my responsibility to fix them."

That line in the sand has become more relevant as memecoins, NFTs, and other assets find themselves edging closer to mainstream finance. Not to mention, more and more traditional financial players are eyeing an entrance into stablecoins, including the President Trump-aligned World Liberty Financial. But while some worry about potential spillover into traditional markets, Commissioner Peirce maintains that setting clear boundaries will be key, as well as reminding consumers of the risks. "You can't say just any time there's some kind of thing where you could lose money, the SEC gets to jump in, then…our jurisdiction is going to have no bounds at all."

“I think we shouldn't deny the fact that just because you slap the word crypto on something, doesn't mean that problems that we've seen in other areas are not going to crop up here. They could,” she said. “I think it's also a time for us to remind investors and consumers that, you know, you've got to exercise skepticism when you make decisions about what you're putting your money into."

Still, the question of confidence in U.S. markets is a valid one — especially as some crypto products begin to get wrapped into more familiar structures like ETFs. Peirce acknowledged the concern. "We do not have the ability to regulate the entire marketplace. We have a job, which is to make sure that the markets that we regulate are operating in a way that people feel investors feel comfortable investing."

Since the departure of former Chair Gary Gensler, the SEC has made a considerable shift in how it’s regulating crypto. For one, the SEC issued a memo that essentially clarified that memecoins aren’t securities, and thus, not in the SEC’s remit. As Commissioner Peirce has explained in the past, her take is that the agency should lean into letting people do what they want with their money. That doesn't necessarily mean anyone should see that as an endorsement of every new asset, though.

"We always expect the investor to do her own research," she said. "Even if we had said that memecoins were within our jurisdiction, it wouldn't mean that we're saying we sign off on them."

But as the crypto world and traditional markets get more intertwined, skeptics have a right to be fearful. These are two very different markets with very different rules inching closer each day. One need not look back too far into the past to find a time when GameStop traders brought the stock market to a halt. Robinhood and other exchanges halted buys of certain securities as volatility threatened a number of traditional market players. It’s not a stretch to imagine how a retail-driven market anomaly could trigger volatility again with a new set of players. Commissioner Peirce is hopeful that won’t happen again with crypto.

“One of the things that has looked most promising to me about the technology underlying crypto is the ability to eliminate intermediaries, because intermediaries have been a historical point of failure,” she said. “And so for those kinds of intermediaries, we probably want to look to our history with traditional financial regulation to see which elements we need to port over to ensure that the same types of problems don't emerge in this area.”

Of course, Commissioner Peirce and the SEC are not working to regulate crypto in a vacuum. Congress is also increasingly taking up bills that had stalled in past years. First up, looks to be the GENIUS Act – a bill focused on clarifying rules for stablecoins and setting regulations there. Without those, prior experiments have certainly panned out poorly. After de-pegging from its intended $1 price, a stablecoin issued by Terra collapsed and evaporated $40 billion in investor assets. Do Kown, Terra’s founder, now awaits trial in New York.

Whether the SEC can thread that needle without undermining its broader mandate remains to be seen. But in Peirce’s view, the real danger for the U.S. isn’t doing too much with crypto — it’s not doing enough to unleash the technology.