With its staggering $1.4 trillion valuation, the crypto industry is witnessing a seismic shift as the United States government takes decisive action. This follows the conviction of Sam Bankman-Fried, the disgraced founder and former CEO of the collapsed FTX crypto exchange.
However, the saga continues as another prominent figure, Changpeng Zhao, the billionaire founder of Binance, the world’s largest cryptocurrency exchange, pleads guilty to failing to maintain an effective anti-money laundering program. This event marks the heaviest penalty ever imposed on a money services business in U.S. history, emphasising the government’s commitment to regulating the crypto industry.
Also Read: Is Binance’s Founder Changpeng Zhao Big Enough to Survive a $4.3B Fine and Ousting?
Key Takeaways
As the dust settles on the recent legal turmoil in the crypto industry, it’s necessary to understand the big lessons from what’s being called the most critical crackdown on crypto in the U.S. Let’s break down the five important things we can learn from this major event. We’ll look at how the crypto industry is reacting, what’s happening in the market, the rules in place, and what might happen to cryptocurrencies after all these unexpected incidents.
The Crypto Industry Faces Image Crisis
The fall from grace of Zhao and Bankman-Fried, once considered the faces of the crypto industry, has triggered a re-evaluation of the industry’s overall integrity. Their legal troubles now demand that good actors within the crypto sphere make a compelling case to sceptics, reinforcing the perception that these incidents are exceptions rather than the norm.
Brian Armstrong, CEO of Coinbase, took this opportunity to distinguish his platform from Binance, emphasising Coinbase’s long-term commitment to compliance since its founding in 2012. This shift, Armstrong believes, opens a new chapter for the crypto industry, demanding a recommitment to regulatory adherence.
In a post on Tuesday, November 21, Armstrong stated, “Since the founding of Coinbase back in 2012, we have taken a long-term view. I knew we needed to embrace compliance to become a generational company that stood the test of time.” “Today’s news reinforces that doing it the hard way was the right decision. We now have an opportunity to start a new chapter for this industry.”
Simultaneously, government agencies overseeing crypto regulation and compliance, particularly the Justice Department, stress the significance of these legal actions. Attorney General Merrick Garland, in a press conference on Tuesday, made it clear that prosecuting the CEOs of major cryptocurrency exchanges sends a powerful message using new technology to break the law does not make you a disruptor; it makes you a criminal.
Related: Tougher Crypto Regime Sparks Boom for Compliance Advisers
New Phases of Market Volatility and Resilience
The immediate fallout from these regulatory developments was felt in the crypto industry, with Binance coin experiencing an initial 6% drop after the U.S. Department of Justice announced charges against Zhao. This multi-year investigation into Binance triggered concerns about broader regulatory scrutiny, impacting Binance and other crypto firms like Kraken and Tether.
Bitcoin (BTC) saw a decrease of about $420 (1.1%), settling at $37,071, while Ethereum (ETH) fell by $40 (2%), reaching $1,997 per coin. However, the market exhibited resilience, with BTC and ETH rebounding by 2.4% and 5%, respectively, on the following day.
Analysts attribute this swift recovery to reports suggesting that Zhao’s deal with the Department of Justice could allow him to retain most of Binance’s shares. This optimistic outlook and the relief of concluding a prolonged investigation contributed to the rebound. Despite the regulatory challenges, the overall performance of the crypto market in 2023 has been robust, with BTC witnessing a 120% increase year-to-date and ETH rising nearly 70% over the same period.
Also Read: Morgan Stanley States That Crypto Winter May Be Over as Bitcoin Halving Approaches
Binance’s Exit From the U.S Isn’t the End of the Platform
As part of the deal with the government, Binance is required to cease operations in the U.S. Users accessing Binance.com from the U.S. were greeted with a notice stating that the platform is “Unavailable in your country or region”. However, there is a crucial caveat: “If you are in the U.S. or select U.S. territories, Binance.US is a U.S.-regulated platform where you can buy, trade, convert, and stake crypto with low fees.”
Binance.US, a subsidiary created in 2019 to serve U.S. consumers and adhere to U.S. regulations, remains unaffected by Tuesday’s announcement. This means that users in the U.S. can continue to buy and sell crypto under the Binance umbrella, highlighting the importance of regulatory-compliant alternatives for American crypto enthusiasts.
The Federal Government Is Taking a Tougher Stance
The announcement on Tuesday, November 21 is a vivid example of the federal government’s uncompromising stance on illicit activities involving cryptocurrencies. The Securities and Exchange Commission (SEC), responsible for enforcing federal securities laws, filed a lawsuit against Kraken, alleging unregistered securities exchange operations and commingling customer assets with the company’s holdings.
Quick Link: SEC Chair Gary Gensler Says an FTX Reboot Could Happen if It Follows the Law
This lawsuit against Kraken is one of several suits the SEC has filed in 2023, targeting crypto companies such as Bittrex and Coinbase. The SEC’s suit against Binance for allegedly violating investor-protection laws remains in litigation. Despite some unfavourable rulings this year, the SEC is expected to persist in aggressively clamping down on crypto firms through legal action.
However, Tuesday’s major announcement highlights that it is not only the SEC but the entire federal government actively working to keep mischief in the crypto industry at bay. This comprehensive approach involves the Justice Department, the SEC, the Commodity Futures Trading Commission (CFTC), and the Treasury Department. Furthermore, a National Cryptocurrency Enforcement Team within the Justice Department actively identifies and investigates criminal cases involving digital assets.
Related: Federal Reserve Initiates Innovative Program to Regulate Crypto Operations within U.S. Banks
There’s a Need for Greater Regulatory Clarity
The federal government has an extensive toolbox of regulations to combat financial crimes, including laws criminalising money laundering and bank fraud. This arsenal effectively secured the first-ever corporate settlement with a crypto exchange. During Tuesday’s press conference, Deputy Attorney Lisa Monaco emphasised that the government will relentlessly use every available tool against those who misuse technologies for illicit activities.
Despite the existing regulatory framework, officials suggest that there is room for new regulation, highlighting the need for “Regulatory clarity”. This call for clarity is not new, and it echoes the ongoing debate within the crypto industry about the necessity of clear guidelines. New regulations could benefit investors and law enforcement officials by distinguishing legitimate crypto products from criminal facades.
CFTC Chair Rostin Behnam said on November 21, “I’ve advocated for filling in some of these gaps, specifically around commodity tokens, and I do think if we’re able to do that, obviously with Congress’s help, we can prevent these actions from happening and not have to be here after the fact.”
Also Read: U.S. Treasury Proposes Crypto Mixer Regulations to Counter Hamas Use
Closing Words
The path to comprehensive crypto regulation remains unclear. It could materialise through agency-level rulemaking at the SEC or CFTC, subject to judicial review if challenged. Another avenue is congressional action, a more comprehensive approach that could provide more straightforward regulation for the crypto industry.
While the challenges are evident, the resilience of the crypto industry is equally unmistakable. The rapid rebound of the market post-regulatory turbulence underscores the maturity and adaptability of the crypto ecosystem.
As stakeholders navigate these changes, the future of cryptocurrencies hinges on striking a delicate balance between innovation, regulatory adherence, and maintaining public trust. The call for regulatory clarity stresses the need for a comprehensive framework fostering innovation and security.