Cryptocrackdown: The SEC and the Treasury Department would investigate the exchanges

Besides volatility, in the past decade crypto has perhaps been best known for its anarchy. Mysterious cryptocurrency founders have disappeared after pocketing millions from initial coin offerings, while hackers and fraudsters have sought refuge in a financial wild west made possible by blockchain.

The US government is working to change that, according to two studies revealed on Tuesday. Coinbase, the largest crypto exchange in the United States by trading volume, is facing an investigation by the Securities and Exchange Commission, according to Bloomberg. The SEC reportedly argued that the 150 tokens Coinbase allows users to buy should be listed as securities, which would put the exchange under the regulator’s jurisdiction.

If cryptocurrencies are categorized as securities, companies hoping to create or trade crypto should register with the SEC. It would also mean that some crypto scams would be crimes. Coinbase shares fell 21% after Bloomberg’s report.

Then there’s Kraken, an estimated $10 billion crypto exchange that The New York Times reports is being investigated by the Treasury Department’s Office of Foreign Assets Control for alleged sanctions violations. Kraken is accused of allowing customers in Iran to buy and sell crypto, a violation of U.S. sanctions, according to the Times. It follows a warning from the US Treasury last October that digital assets like bitcoin and ether could make it easier for countries like Iran, North Korea and now Russia to evade sanctions.

“Kraken has robust compliance measures in place and continues to expand its compliance team to match the growth of its business,” the company’s chief legal officer, Marco Santori, said in a statement. “Kraken closely monitors compliance with sanctions laws and generally alerts regulators to even potential problems.”

Coinbase Chief Legal Officer Paul Grewal tweeted: “Happy to say it again and again: We are confident that our rigorous due diligence process – a process that the SEC has already reviewed – keeps securities off our platform. , and we are watching looking forward to engaging with the SEC on the matter.”

The cases involving Kraken and Coinbase are different from each other, but both highlight the extent to which regulators and law enforcement are targeting crypto companies. The anonymity that blockchain provides makes it difficult, but not impossible, to crack down on specific users. Companies and their employees are easier targets. The SEC launched a similar investigation into Binance in June to determine whether the exchange’s BNB cryptocurrency should be listed as a security.

Studies are also beginning to yield results. Last week federal prosecutors charged Ishan Wahi, a former Coinbase product manager with insider trading, alleges that Wahi leaked information to his brother and a friend about upcoming altcoin listings. This is called the first allegation of insider trading regarding digital tokens. In June, an OpenSea NFT Marketplace product manager was accused by the FBI of using confidential information to buy NFTs shortly before they were promoted on the site, which was also called a first.

Perhaps more importantly, legislators are work slowly but surely on the bills this would see cryptocurrencies fall under more explicit legal frameworks. A bipartisan bill introduced in the Senate argues that cryptocurrency should be regulated as a commodity and as such fall under the Commodity Futures Trading Commission (CFTC). Meanwhile, the House Financial Services Committee is working on a bill that would see stablecoin issuers, which are pegged to fiat currencies like the US dollar, come under the control of the Federal Reserve.

The 2022 crypto meltdown apparently triggered regulatory impulses. Much of the bitcoin and ether crash can be attributed to poor macroeconomic conditions. The same interest rate hikes that caused the bitcoin crash also affected tech stocks, but the crypto industry saw a painful contagion effect that added to the chaos. When Terra’s stablecoin broke away, he wiped out billions of market capitalization. This caused the insolvency of the hedge fund Three Arrows Capital. When 3AC could no longer pay its debts, a company to which it owed more than $600 million, Voyager Digital, declared bankruptcy.

Crypto boosters remain confident that tokens like bitcoin and ether will live to see unprecedented new staggering valuations. When that happens, if the US government has its way, the Wild West might not be so wild.

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