US crackdown makes crypto market hot

US authorities have started the year with a crackdown on crypto companies and their products at such a pace that executives fear the industry will be squeezed out of one of its biggest markets.

Over the past few weeks, American regulators, led by the Securities and Exchange Commission, have launched a series of enforcement actions against some of the largest digital asset companies and their tokens. At the same time, many of the banks these businesses rely on for payments and custody of assets are also coming under renewed scrutiny.

The new forceful approach has hit a crypto industry still reeling from a bloody year of falling prices and a crisis of confidence that has led to the collapse of some of the sector’s biggest players, including exchange FTX and lenders Voyager Digital and Celsius network.

Observers say the spate of measures amounts to a coordinated effort to rein in an industry that has so far existed largely outside the confines of traditional financial regulation.

“I would suspect that this is just the beginning of the US single-handedly trying to divide the system between those who meet their standards and those who don’t,” said Tom Keatinge, founding director of the Center for Financial Crimes Security Studies at British think tank RUSI.

Since the beginning of the year, the SEC has sued trading group Genesis and exchange Gemini for failing to register a crypto lending program as a securities offering, and ordered rival exchange Kraken to shut down a program the regulator said it was doing more than 20 percent return bot Customers.

Crypto advocates argue that a hardline approach risks stifling innovation in the industry by over-reliance on “regulation through enforcement” rather than creating a bespoke crypto regulatory framework for the industry.

“This type of regulatory uncertainty will ultimately drive access to crypto, innovation and jobs abroad where customers are not guaranteed the same level of protection,” said Paul Grewal, Coinbase’s chief legal officer. “Meanwhile, America and Americans will be left behind.”

However, former head of the SEC’s Internet Enforcement Office, John Reed Stark, said the agency’s approach is consistent with how traditional finance deals with violations.

“This phrase ‘regulation through enforcement’ is just a crypto buzzword used to obfuscate and distract,” he said. “There is no insider trading law, there is no derivatives fraud law. It’s a broad framework specifically meant to be non-specific.”

In a further escalation of the regulatory blitz, New York authorities have targeted one of the largest so-called stablecoins — dollar-pegged tokens that serve as a crucial entry and exit point for investors in cryptocurrencies serve.

This week, the New York Treasury Department stopped issuing BUSD, which is widely traded on Binance stablecoin, which carries the branding of the world’s largest crypto exchange. After the order, the amount of BUSD in circulation fell by about $1 billion in a matter of days as investors shifted their cash elsewhere.

“The US crackdown on crypto has become far more aggressive than what we have seen from regulators in many other major jurisdictions,” said Ilan Solot, co-head of digital assets at Marex Solutions.

“Apparently, the SEC believes its actions are in the long-term interests of consumers, and it is willing to tolerate the short- to medium-term consequences of a capital outflow from the United States,” he said.

There are also signs that US regulators are turning their attention to the connections between the crypto world and the traditional financial system.

The Federal Reserve last month turned down an application from Custodia Bank, a crypto-focused institution, to join its payments system because its proposed crypto activities are “most likely inconsistent with safe and sound banking practices.”

Silvergate, another crypto-focused bank, is under scrutiny from US lawmakers for its role in providing services to FTX. Mainstream lenders may increasingly seek to sever ties with the crypto world to avoid potential regulatory troubles, lawyers say.

“If you have a bank that is regulated in the United States and the Fed questions its involvement in the crypto industry, it can lead to serious valuations internally at the bank,” said James Greig, partner in financial regulation at law firm Addleshaw Goddard in London. “It’s more of a nudge than a coercive measure.”

Earlier this month, Binance suspended US dollar payments for no reason. One of its banking partners, Signature Bank, previously stated that it would no longer allow crypto exchange customers to buy or sell amounts less than $100,000. Signature is a member of the federal system that insures deposits held with the country’s lenders.

In a question-and-answer session on Twitter, Binance CEO Changpeng Zhao said it’s likely banks have been asked by regulators to “either not fully partner with crypto companies or be very cautious about partnering with crypto companies.” “.

Whether enforcement is direct or indirect, industry insiders say they are already feeling the chilling effects of recent regulatory crackdowns.

“I believe we will see more SEC action in the coming months and this is just the beginning,” said Charles Storry, head of growth at crypto platform Phuture. “If you’re a big project, it’s best to gear up for inbound impact.”