Regulators’ action has been called a “carpet bombing” of the cryptocurrency industry. Why?
There have been at least two major negative developments in crypto over the past week. We are talking about SEC sanctions against crypto exchange Kraken, as well as a ban on the issuance of BUSD Stablecoin by Paxos. This is more like coordinated regulatory pressure on crypto, or “carpet bombing”, according to Christine Smith, head of Blockchain Association. We give more details about the expert’s point of view.
It should be noted that the harsh actions of US regulators in relation to digital assets have previously decided to take advantage of the Hong Kong authorities. As it became known tonight, from June 1, 2023, cryptocurrency transactions will become completely legal for residents of the region. Which means Hong Kong could get an influx of capital from jurisdictions where cryptocurrencies are treated more strictly.
Brian Armstrong, head of cryptocurrency exchange Coinbase
The head of US cryptocurrency exchange Coinbase, Brian Armstrong, reacted to the developments. He believes that such an approach will have a negative impact on the US economy. Here is Brian’s quote from Twitter.
The US risks losing its status as a financial centre in the long term due to the lack of clear regulations on cryptocurrency and the hostile attitude of the agencies.
Congress must act quickly for the sake of adopting transparent regulations. Cryptocurrencies are open to all comers worldwide, with other parties already leading the way in this context. The EU, the UK – and now Hong Kong.
It’s not just Brian Armstrong who is ultimately unhappy with what’s happening.
What are the problems with cryptocurrencies
The Blockchain Association is a lobbying group with nearly a hundred members. It is funded by many for-profit companies, including trading platform Kraken, consortium Digital Currency Group (DCG) and the Filecoin Foundation. Overall, the organisation’s mission is to promote digital assets and their popularity around the world.
During an interview on CNBC, Smith voiced the following opinion.
If you look at what’s happening piecemeal, what’s happening is that various regulators are taking action-often through enforcement or agreements in the case of Kraken-and trying to sort of “rein in the industry.”
Indeed, what is happening looks more like a targeted punishment of blockchain industry participants than a desire to bring order to the niche regulation. As a reminder, Kraken's fine was determined unexpectedly and quickly, causing the company to be forced to take this move for the sake of avoiding a trial in court. However, prior to that, staking on this platform has worked successfully and has not been questioned by regulators.
Therefore, such initiatives seem like a desire to crack down on niche representatives and scare away new players at the same time.
Blockchain Association chief executive Christine Smith
The Blockchain Association CEO added that regulatory scrutiny has tightened since last year’s FTX collapse, as “they have largely failed to anticipate what turned out to be one of the biggest frauds since Bernie Madoff.”
As a reminder, the founder of crypto exchange FTX has made numerous appearances in meetings with members of the government and essentially received special treatment from US regulators. However, it eventually turned out that Sam Bunkman-Fried owed his "success" to users' money, which without their consent was used for the personal needs of Sam and his colleagues at the same time.
According to Decrypt sources, Smith praised the European approach to regulating the crypto industry. As a reminder, the EU has adopted the Crypto Asset Markets Regulation (MiCA), which is due to come into force in early 2023. The new set of rules should clarify various provisions regarding cryptocurrencies in the Eurozone.
Bitcoin exchange rate over the past 30 days
But recent statements by Senator Elizabeth Warren, who criticised the failure of the crypto industry to adequately enforce anti-money laundering regulations, drew many negative comments from Smith. She noted that Warren simply misunderstood the problem – the crypto industry cannot universally implement a user identity verification (KYC) procedure, although this is already done on almost all centralised platforms.
Individual cryptocurrencies cannot be required to implement KYC, as this would expose the anonymity of peer-to-peer transactions in cryptocurrency networks, and there would be no one to do it, as regulators would not be able to block block blockchain transfers in case of trouble. Here, users will always find an anonymous alternative, so regulators simply should not even “try to push” in this direction.
We think that such actions by regulators do seem suspicious. Still, prior to this, both Kraken and BUSD Stablecoin were successfully operating with the approval of various agencies. However, now for some reason they have been declared outside the permitted norms. With that in mind, we can assume that developers, entrepreneurs, and others in the blockchain industry will be looking for options to move their own companies outside of the US to friendlier jurisdictions. So there could be a lot of changes in the coin niche in the near future.
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