As an analyst with a background in finance and experience following the crypto industry, I believe that the influx of new investors into the crypto space has brought both opportunities and challenges. While the increased adoption has led to greater awareness and acceptance of digital assets, it has also attracted the attention of regulators who are concerned about potential risks such as market manipulation, investor protection, and illicit activities.
The surge of new investors entering the cryptocurrency market has brought about significant benefits for acceptance, yet it carries an accompanying price.
Currently, regulators are paying closer attention than ever before to the cryptocurrency sector due to concerns over market manipulation, safeguarding investors, and the possibility that digital assets may be used for illegal transactions.
Over the next half to two years, the U.S. Commodity Futures Trading Commission (CFTC) anticipates increasing its regulatory efforts against the crypto sector.
At the Milken Institute Global Conference on May 6, Rostin Behnam, Chair of the Commodity Futures Trading Commission (CFTC), expressed concern over the increasing price of cryptocurrencies and the surge of novice retail investors. He warned that this trend is likely to bring about another wave of crypto-related scams and frauds.
He indicated that it’s likely we’ll experience another round of regulatory actions within the next 1.5 to 3 years or 2 to 4 years due to the current trend of asset value increase and growing retail investor interest.
As a crypto investor, I understand that currently, there’s no clear-cut regulatory framework for overseeing crypto service providers. The Chair of the Commodity Futures Trading Commission (CFTC) anticipates increased enforcement actions against crypto companies in the absence of such regulations.
As a researcher studying the regulatory landscape of cryptocurrencies in the United States, I’ve observed an uptick in enforcement actions by the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) against crypto firms starting from 2023. Last year marked a record-breaking number of such actions for both regulatory bodies.
Based on a study conducted by Cornerstone Research, an esteemed litigation consulting firm, SEC enforcement actions hit a record peak in the year 2023. Digital assets emerged as a major focus area for the Securities and Exchange Commission (SEC).
In 2022, the Securities and Exchange Commission (SEC) significantly increased its administrative hearings by more than doubling their number from previous years, holding a total of around three times as many. Furthermore, in the year 2023, the SEC initiated 46 enforcement actions. The result of these actions led to financial penalties amounting to $281 million being imposed through settlements.
As an analyst, I’d rephrase it as follows: In 2023, one-third of the Commodity Futures Trading Commission (CFTC) crypto-related enforcement actions amounted to 47 cases. Since the inception of the CFTC in 2015, these 47 enforcement actions represent over a third of the total actions taken by the commission.
US regulatory bodies have ongoing investigations against American crypto companies including Kraken, Binance, and Coinbase. In the span of 2024, these agencies escalated their crackdowns. In April, the U.S. Department of Justice apprehended the founders of a privacy-centric Samurai wallet on allegations of money laundering. A Wells notice was served by the Securities and Exchange Commission (SEC) to Robinhood in May.
U.S. regulators target broker-dealers and mixers
With the CFTC chair issuing ominous warnings and crypto businesses facing heightened enforcement efforts, crypto industries prepare for potential regulatory crackdowns within the coming years.
According to Patrick Gruhn, a past collaborator at Crypto Lawyers, a legal practice based in Switzerland, the Securities and Exchange Commission (SEC) and other American regulatory agencies have been focusing their efforts on cryptocurrency companies operating under a broker-dealer business structure.
“The SEC targets business models and firms that, from a high-level perspective, compete with traditional finance, e.g., broker-dealers. If a project or company allows people to speculate on the price of crypto assets or generate interest-like payments, such a firm or project team is at risk, whether it considers itself decentralized or not.“
Law enforcement has been paying close attention to privacy concerns and mixer tools in their investigations. In the United States, authorities have taken action against certain cryptocurrency mixing platforms like Tornado Cash, while also apprehending the founders of privacy-centric digital wallet provider, Samurai.
Recent: Despite Bitcoin price volatility, factors point to BTC’s long-term success
As a crypto investor, I’ve noticed that there’s been a lot of debate within our community regarding the use of mixing and privacy-focused services. Some believe these tools are essential for protecting their financial privacy and security, while others express concerns about potential illicit activities. However, it’s important to remember that the creators and founders of these services are not breaking any laws by writing neutral code. They’re simply providing a tool, just like any other software developer does in the tech industry. It would be unjust to persecute them for the actions of their users.
Lack of U.S. crypto regulation could impact industry
The absence of a clear legal structure and the jurisdictional responsibility among various regulatory bodies poses added complications for cryptocurrency companies and law enforcement agencies.
In interviews, Keith Blackman, a legal partner at Bracewell in New York City, has pointed out that previous chairs of the Commodity Futures Trading Commission (CFTC) have voiced worries over the absence of a comprehensive regulatory structure for cryptocurrencies within the U.S., markedly differing from SEC Chair Gary Gensler’s proactive stance on enforcing actions against crypto-related violations, which he has initiated without the establishment of specific regulations tailored to digital currencies.
As a crypto investor following the developments closely, I’ve noticed that Behman’s recent comments from the Commodity Futures Trading Commission (CFTC) seem to be leaning towards a more aligned viewpoint with the Securities and Exchange Commission (SEC). According to my interpretation, this could potentially mean that both regulatory bodies are moving in the same direction regarding their regulatory approach to digital assets.
New crypto firms may be dissuaded from joining the market due to the looming possibility of CFTC enforcement without definitive rules. Established players, on the other hand, will have to allocate additional funds towards legal and compliance advisors, which could hike up expenses and possibly curb advancements.
Neal Levin, a partner at Rimon Law, explained to CryptoMoon that the absence of clear policies and legislation creates ambiguity regarding appropriate actions. In the lack of a defined regulatory structure, regulators and enforcers are compelled to adapt their business models to fit within the existing framework.
“Using crackdowns is a means of shaping behavior and providing guidance short of new legislation. However, this is certainly hampered and will continue to be hampered by the ongoing uncertainty over the classification of digital assets, i.e., whether they are to be deemed ‘securities,’ as we’re seeing with Robinhood and the SEC currently and several other cases.”
When other countries are actively creating detailed rules for cryptocurrencies, the US continues to use an “enforcement-driven” regulatory strategy. This method has resulted in some well-established businesses having to adjust their services or even close down altogether.
Recent: EU crypto regulations undermined by lack of enforcement, say observers
The Kraken company has previously closed down its staking service in the United States, while the Commodity Futures Trading Commission (CFTC) has accused the platform’s operators of illegally managing a digital asset derivatives exchange.
In contrast to the increasing number of regulatory interventions targeting crypto companies, there’s a growing enthusiasm among Wall Street for digital assets.
Traditional financial institutions are increasingly showing interest in the crypto market with the introduction of Bitcoin ETFs on regulated exchanges and their investment in this space.
Market analysts have observed an increasing influence of crypto holders in American politics, suggesting that regulatory friendliness towards cryptocurrencies may no longer be an unattainable goal.
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2024-05-10 16:56