[Feature] Imminent Crypto Crackdown: What Lies Ahead for Crypto?

One might question the need for crypto regulations since crypto is supposed to be decentralised, transparent, and anonymous. Regrettably, fraud cases, money laundering, security attacks, and the likes have been on the rise, forcing authorities to voice out and intervene. An appropriate regulatory crackdown on crypto seems imminent and necessary. To find out what has been going on recently, check out this https://www.coinlive.com/news/detail/?id=15075 for a summary of September’s security attacks.

It is not just hackers you have to keep an eye out for; crypto firms have been issued desist and refrain orders from the California’s Department of Financial Protection and Innovation (DFPI) for allegedly violating California securities laws. These crypto firms, 11 to be exact, include Pegasus, Remabit, World Over the Counter Limited, Elevate Pass, and others, allegedly offered and sold unqualified securities. The allegations include soliciting crypto assets to develop metaverse software, claiming to be a DeFi platform, and more.

Based on DFPI’s press release on 27 September 2022:

“The entities are all alleged to have used investors funds to pay purported profits to other investors, in the manner of a Ponzi scheme. Furthermore, each of the entities had a referral program that operated in the manner of a pyramid scheme… The entities in today’s actions are classic examples of high yield investment programs (HYIPs). These are investment frauds that typically promise high returns with low risk and overly consistent returns, provide little details about the people running the HYIP, use vague language to describe how the HYIP makes money, offer referral bonuses, facilitates deposits and withdrawals with crypto assets, and use social media to gain attention and attract investors.”

Based on Chainalysis’s 2022 Mid-year Crime Report, through July 2022, $1.9b worth of crypto has been stolen in hacks of services, compared to under $1.2b at the same point last year

As much as many voices have been calling for better crypto regulations, proper thought needs to go into it, factoring in resources, effort, and any other planning that contributes to an ideal framework. Just late last month, California’s Governor Gavin Newsom vetoed a crypto bill born out of an executive order he issued in May.

The proposed framework would have sought the following to be implemented:

• tasking crypto companies with seeking a license to offer their services or digital assets to the state’s residents
• formally adopting new rules governing stablecoins, one of such requirements is that licensed companies only engage with bank-issued stablecoins, which must remain 100% backed by reserves

As to why he vetoed the bill, he had this to say, “Such a significant commitment of general fund resources should be considered and accounted for in the annual budget process.” His reasoning was partly attributed to the bills “premature” nature to lock in a licensing regime without prior research and forthcoming federal actions, and partly because a new regulatory programme would require a loan from the state’s general fund exceeding tens of millions of dollars. The Governor had refused to sign the bill into law, and expressed that only after federal regulators had metered out their own stance toward the new asset class would he work “collaboratively” with California’s legislature to achieve regulatory clarity.

Not limited to the U.S., global law enforcement bodies are likewise concerned about money laundering in crypto. Last Thursday, the UK introduced the Economic Crime and Corporate Transparency Bill ─ it would allow law enforcement agencies in the country to seize, freeze, and recover crypto assets ─ which came after a reported spike in crypto seizures in 2021 by UK’s Metropolitan Police.

The little red dot, otherwise known as Singapore, has been pitching itself as a digital asset-friendly destination until its reputation had been tarnished by the recent lengthening list of scandals and collapses ─ the collapse of Terraform Labs and the international manhunt for co-founder Do Kwon; Three Arrows Capital, a crypto hedge fund that began as a registered fund management company in Singapore, had collapsed in June; Hodlnaut, a Singaporean crypto lender halted withdrawals and laid off a majority of its employees earlier in the year, was placed under interim judicial management in August.

Binance’s regional head of Asia Gleb Kostarev explained that Singapore is not a big focus for them and it mainly depends on regulation; previously Singapore was a sort of crypto paradise but times have changed.

A law professor, Kelvin Low, at the National University of Singapore (NUS) lamented, “The reputational damage over the last six months is a lot more serious than has been let on… Every time one of these companies is brought up, they are mentioned [as being] based in Singapore.” According to experts, Singapore is not doing enough to punish or investigate possible scams. The Monetary Authority of Singapore (MAS) pointed out that “none of these troubled companies are licensed by the Monetary Authority of Singapore” hence were not under its jurisdiction. ChainUp, a blockchain company offering technology to crypto exchanges and other clients, sang a different tune ─ the company is expanding in the city-state and its chief executive Sailor Zhong expressed his confidence in the regulators’ approach.

All these are but the tip of the iceberg. Authorities worldwide have not been spared from the troubles, to put it mildly, that comes with unregulated crypto. Just this Monday, the Financial Stability Oversight Council (FSOC) released a 120-page report detailing crypto’s risks. One of the things mentioned in the report was that the regulatory path that numerous crypto firms have taken is not sufficient while some seem to be engaging in regulatory arbitrage. Thus far, the report is the clearest sign that the crypto industry is set to face increased scrutiny from regulators.

Then two days ago, the crypto risk-management firm Elliptic released a report stating that some $4b in illicit proceeds from crypto has been laundered through DeFi exchanges and other services. The Senate Agriculture Committee is working on a bill that would put most of the crypto spot market under the Commodity Futures Trading Commission (CFTC)’s purview while tokens that are deemed securities will be under Securities and Exchange Commission’s (SEC) oversight. In addition, the House Financial Services Committee is also working on a bill that would address stablecoins, which have a value pegged to the dollar. Both sets of laws, if passed, would benefit adoption for retail and institutions.

Love it or hate it, as of now, a comprehensive regulatory framework that comprises the appropriate regulations would be beneficial to all as a whole. A crypto crackdown seems imminent as the U.S. government urges Congress to accelerate its progress on crypto regulations, and the crypto world, especially the bigger players in the world of finance and investment, anticipate the green light. With the White House solidifying its stance on crypto, others will follow suit.

Disclaimer: The content in this article is, one: solely the author’s opinion and is by no means financial/investment advice, and is purely for educational/informational purpose only; two: research done based on relevant and proper news channel.