The US regulators are getting serious about the crypto industry, and not in the way its players would have hoped for.
Since crypto’s inception, only a few cases of regulatory attacks on the sector were worth mentioning (SEC v Ripple, the OFAC sanctioning Tornado Cash among others), but 2023 marked a whole new attitude. The SEC, the Fed, the Treasury, the OCC, Attorney Generals, the FDIC, the White House, and even the (so far) crypto-friendly CFTC have all participated in the big crackdown on the crypto industry, which has been unfolding since the beginning of the year.
Here’s the timeline of the regulators’ most noticeable actions directed at the crypto firms since the beginning of the year.
Regulatory clampdown, unfolding
January 18. A crypto-focused bank Custodia was denied membership and a master account by the Fed. Custodia, which had been suing the Fed since 2022 for “unlawfully delaying its decision”, filed an amended complaint for an alleged Fed conspiracy to block it. On March 24, the Fed released a harsh 86-page response, stressing “significant deficiencies in Custodia’s ability to manage the risks of its day-one activities”. Custodia, in turn, insisted that as a fully-reserved bank, it carried less risk than the traditional fractional-reserve banks.
February 4. The Office of the Comptroller of the Currency—a US Treasury bureau tasked with overseeing federal banking – let expire the national trust charter application of Protego, another fully-reserved crypto bank.
February 9. Centralized crypto exchange Kraken paid the SEC a $30 million fine, settling an enforcement action alleging its staking program sold unregistered securities. The exchange was forced to permanently shut down the program in the US.
February 12. The SEC sent a Wells notice to Paxos, the issuer of BUSD (Binance USD) stablecoin. A Wells notice is a letter informing the recipient that the SEC is planning to bring an enforcement action against them, and it usually means trouble. Soon after, Paxos stopped working with Binance and halted BUSD emissions.
February 16. The SEC charged Do Kwon, the founder of the defunct TerraUSD, with defrauding investors. On March 23, Do Kwon was arrested in Montenegro.
March 9. The Biden administration proposed a budget including a 30% tax on electricity costs for Bitcoin miners.
March 9. New York State Attorney General filed a lawsuit against KuCoin, a centralized crypto exchange, for allegedly violating securities laws (offering cryptoassets that meet the definition of a security without registering with the attorney general’s office).
March 12. Treasury, Fed, and FDIC issued a joint statement concerning the SVB, while also announcing the closure of Signature Bank, citing “systemic risks”. This closure has been seen by some as political, as the bank’s board member Barney Franck claimed that it was not insolvent.
March 20. The annual Economic Report of the President noted that so far crypto hadn’t brought “none of the benefits” it was appraised for.
March 21. The head of a decentralized exchange SushiSwap was subpoenaed by the SEC.
March 22. The SEC issued Coinbase a Wells notice, warning the company that it identified potential violations of the US securities law. This comes 2 years after the SEC inspected the exchange’s operations (according to its lawyer) and forced it to abandon its Lend project.
March 22. The SEC charged Tron blockchain founder Justin Sun and three of his companies (Tron Foundation, BitTorrent Foundation, and Rainberry for the “unregistered offer and sale of crypto asset securities”, as well as “fraudulently manipulating the secondary market”.
March 23. The SEC issued an investor alert, stating that “Investments in crypto asset securities can be exceptionally volatile and speculative, and the platforms where investors buy, sell, borrow, or lend these securities may lack important protections for investors.”
March 27. The CFTC filed a civil lawsuit against Binance and its CEO Changpeng “CZ” Zhao, accusing the company of servicing US customers without filing for the appropriate licenses and helping customers bypass the platform’s KYC (know-your-customer) and other compliance rules.
Fight back or leave?
The situation is becoming difficult for US crypto firms, and while some of them, like Custodia, are actively fighting back, others are eyeing overseas possibilities.
Coinbase recently announced its expansion to Brazil, and stablecoin issuer Circle has applied for regulatory approval in France.
This year promises to be critical for the US crypto industry.
Written by D.Center
