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Crypto regulations in the U.S. have been a hot discussion point in the past months, with specialists citing harsh regulation. In under 6 months, the U.S. regulators, including but not limited to SEC and CFTC, have charged numerous high-profile individuals and organizations in the U.S.
While some of these organizations went against the common banking rules in the U.S., there is an outcry that regulators, specifically the Securities and Exchanges Commission, are using enforcement measures before introducing a binding regulatory framework first which might affect the interest of crypto organizations in the U.S.
SEC’s recent efforts
On Feb. 9, 2023, the SEC held a closed-doors meeting coming out with information that it had charged Kraken crypto exchange $30 million for violating some of its regulations via offering crypto staking services in the U.S. Additionally, it asked Kraken to cease offering these services in the U.S.
Coinbase legal battle
Coinbase seems to be the next high-profile truffle with the SEC after XRP’s parent company Ripple. The exchange’s CEO, Brian Armstrong, has taken a strong stand against the regulator’s tendencies to charge crypto organizations without a fitting regulatory framework.
On May 16, 2023, the SEC asked courts to reject a recent request by Coinbase that sought to compel the authority to introduce clear rules of the road regarding regulating crypto. The exchange filed the motion on Apr. 27, 2023, also revealing that it had initiated legal proceedings against the SEC after receiving a Well’s Notice from the regulator.
The exchange’s Chief Legal Officer Paul Grewal expressed the company’s frustration with the regulatory stance in the U.S. last month, saying:
“Coinbase does not take any litigation lightly, especially when it’s with one of our regulators,” he noted. “Yet we, like other companies in the industry, are facing potential punitive actions from the SEC without clear understanding of how the SEC interprets the law in relation to our business.”
In March, the SEC Chair Gary Gensler revealed to Congress that his authority required an extra $2.4B in funding. He said the authority lags in monitoring and regulating upcoming markets like cryptocurrencies. He said the extra funding would help arm the authority with the right tools and personnel to flush out bad actors from these markets.
Gary Gensler says a vast majority of cryptos are securities
One of the most controversial statements to ever come from Gary Gensler regarding cryptocurrencies is that Ethereum is a security asset. He also said that many cryptos should be classified as securities.
These statements were not welcomed by the crypto community and other regulators like CFTC, who believe that some crypto products are commodities. However, some experts never agreed with either; they stated that cryptos are digital assets and should be bound by new regulations and classified distinctly from traditional finance products.
Dr Thomas Hogan
DR Thomas Hogan, Senior Research Faculty at American Institute for Economic Research (AIER), released a video on Youtube in April discussing how the U.S. was attacking crypto via Operation Chokepoint. He also addressed the possible resurgence of this planned attack in the form of Operation Chokepoint 2.0, which aims to cripple the crypto industry.
In the video, Hogan states that the regulators’ power over the crypto industry has increased exponentially over time, with unelected bureaucrats getting heavily involved in the making and enforcement of new regulations which circumvent the democratic process as their core aim is safeguarding their wealth or making new fortunes off of the new regulations that they are bringing.
Coinbase CEO Brian Armstrong claims the SEC wants to do away with crypto staking
Coinbase CEO Brian Armstrong has repeatedly revealed that the US SEC has hidden agenda regarding the crypto industry. He has come out to say that SEC’s plan is to cause destabilization of the industry in a bid to control it internationally, which might not work, leaving the U.S. behind in the innovation.
On Feb. 9, 2023, he tweeted that his office had received rumors that the SEC sought to eliminate crypto staking for retail customers.
Lax regulation witnessed in the traditional U.S. financial sector
Silicon Valley Bank sinks pulling international customers down with it
Republican lawmakers are accusing top bank regulators of sitting back while big banks like Silicon Valley Bank went down in flames. The collapse of this regional banking institution in the U.S. was the second largest of its kind in U.S. history.
Regulators closed the bank on March 10 and FDIC announced that it would bail out customers using the money paid to it. However, new information has surfaced that international customers did not benefit from this act of ‘kindness and responsibility’ by regulators.
2008 crisis caused by lax regulation-Janet Yellen
Treasury Chair Janet Yellen has confessed that lax regulations by the US government are to blame for the industrial collapse of 2008. We never saw any major changes in the way that the banking system is run in the U.S. even after the collapse meaning loss of income for millions of citizens.
Additionally, a big number of officials of wrongly managed financial institutions of the era were never charged or barred from ever participating in similar offices ever again. For instance, an executive at SVB was the CFO of LeMahns Brothers which collapsed in 2008. Should regulators bar such individuals from ever participating in the financial sector ever again? You tell me.
Banks are issuing risky residential mortgages under regulator’s watch
Banks have been issuing residential mortgages that are risky and hurting U.S. citizens due to a lack of enough oversight from governing bodies. Some types of mortgages like the ones with variable prices are risky as they squeeze a big number of people down their social classes when an economic crisis happens.
Unluckily, the U.S. regulators are not talking about this issue as banks continue to siphon money from innocent citizens who never participated in the process of passing bad financial policies that have brought inflation rates up necessitating high bank rates from the federal reserve.
Now in May 2023, the prices of varying mortgages was up by 7%, and have to be serviced by the same citizens who are battling a 6% total inflation against the US dollar.
Harsh crypto regulation is not good for innovation…
Several crypto and financial analysts have called out the SEC for its regulation methods citing that it won’t be good for innovation. Here is what some of them have to say:
Coinbase CEO Brian Armstrong has become one of the greatest forces in the blockchain industry following his readiness to challenge the SEC in court regarding its poor regulatory framework and its tendency to capitalize on it.
On Feb. 9, 2023, he condemned the US SEC for seeking to ban crypto staking, stating that it would affect the U.S. markets by driving crypto companies offshore. He stated that the operation of companies away from the U.S. is the real reason for increased fraudulent activities, like in the case of FTX and Terra ecosystems.
Armstrong also led his team in building an international exchange last month to move away from the U.S., which foreshadows growing displeasure among crypto entities in the U.S.
Tim Tully- CEO, Zelcore Technologies
In an interview with Fintech Express, CEO Timothy Tully of Zelcore Technologies, a Web 3 company offering secure and simple-to-use ‘control center’ for cryptocurrency wallets, digital assets, and blockchain data, insisted on the U.S. having a uniform crypto regulatory framework.
He referenced the FTX, Kraken, and Paxos’s BUSD cases, saying that regulators are not making the rules clear yet insist on enforcing their mysterious interpretation of TradFi rules.
In his words, he said:
“Though regulation is necessary at this point, some of the steps that the U.S. regulators are taking may only make things worse. For instance, the branding of BUSD as a security, introduction of CBDCs which will be used as tools of surveillance is wrong and will most likely push crypto innovation away from the U.S.”
He explained that the noise witnessed in the crypto space is most likely a trojan horse from the U.S. SEC looking to stifle crypto innovation globally.
Joe Lubin, CEO, ConsenSys and Ethereum co-founder
In March, Joe Lubin, Consensys CEO, and Ethereum co-founder, hit back at claims that Ether is security. He said that he feels Ethereum is not a security after Gary Gensler labeled it so, and a subsequent lawsuit from the New York Attorney General against crypto exchange KuCoin also named it so.
Lubin said that Ethereum is more of a commodity like oil other than a security citing that people often buy oil anticipating a price rise. He stated that crypto industry participants are generally frustrated with how regulators handle their job. However, he added that it’s a good thing that some regulatory efforts have brought more light to the crypto space.
“I think some of us believe that many of the actions are right and reasonable,” he said, adding “more clarity” was needed. “We’ve seen focus on things that should see real scrutiny and we’ve seen misunderstandings.”
Oliver Linch, CEO Bittrex
Oliver Linch’s Bittrex Inc. was charged by the US SEC on Apr. 17, 2023, on allegations that it was operating as an unregistered securities exchange, broker, and clearing agency in the U.S. The regulator further accused the exchange’s international branch, Bittrex Global GmbH, of failing to register with them, claiming that both exchanges shared a single order book.
“We’ve not really seen an explanation as to what the SEC’s thinking is there, why that is of significance,” Linch said, referring to allegations of a shared order book. “Suffice to say, we think that they’re mistaken in the way they conceive of it legally and in terms of facts.”
Oliver Linch hit back at the regulator’s claim that they did not get any notice of an ongoing investigation until the SEC sent a notice saying they had reached a preliminary conclusion. He explained that the SEC did not serve justice as they ignored their right to have a chance to explain facts about how their exchanges operated.
He, however, praised the regulatory efforts in Lichtenstein, Bermuda, saying that it’s great for regulators to identify the risks associated with crypto and move to managing them rather than discouraging service providers.
“What we’re seeing is a growing realization that the most successful regulatory regimes are ones that have created a framework for crypto on a bespoke basis,” Linch said. “Now, that’s why we’re regulated in Liechtenstein in Bermuda, because what those jurisdictions did really early on is really get to grips with crypto, what the product is, what services, what the risks are, and say to people, ‘OK, well, we can identify and manage. Here’s how you do it safely.’”
Linch asked the U.S. Congress to help sort out the crypto regulatory mess and ensure that if the country wants to regulate the industry, it starts with developing a workable framework
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