The government crackdown on crypto is well underway
The sun may be setting on the cryptocurrency craze. If you’re an investor or even just a curiosity-seeker on the fringes of this financial segment, you might want to prepare for its demise.To get more news about crypto exchange scams, you can visit wikifx.com official website.
In just the last few weeks, market and banking regulators in the U.S. have tightened the screws on crypto-related firms. Legislative initiatives in Congress aimed at liberalizing rules for crypto promoters appear to be running out of steam.
The entire crypto market, from the pioneering cryptocurrency bitcoin to fad crypto such as Dogecoin and obscure proprietary tokens such as Stellar and Cardano, have been in an extended decline.The capitalization of the crypto market, which peaked at more than $3 trillion in late 2021, is now estimated at $800 billion, implying enormous losses for late-stage investors. (Some cryptocurrencies have rallied lately, but the benchmark bitcoin is still down by more than 60% from its peak in November 2021.)
To critics of crypto, these developments reflect the influence of gravity on a marketplace characterized by “frequent instances of operational failures, market manipulation, frauds, thefts and scams,” as the U.S. Treasury put it in a consumer advisory issued last September.There’s no there there, and we have plenty of history to prove it,” Lee Reiners, a crypto expert at Duke and former regulatory official at the Federal Reserve Bank of New York, told the Senate Banking Committee at a hearing Tuesday.
Unlike stocks and bonds, which give owners a claim on the issuers’ profits, or precious metals, which generally have intrinsic industrial or commercial value, cryptocurrencies represent no ownership of anything tangible and no claim on economic productivity.
Given that the first bitcoin transaction occurred in 2009, Reiners observed that despite “a 14-year track record to look back on,” no one has identified what crypto is good for, except as something people can buy solely on the expectation that they can sell it to someone else at a higher price in the future — which is often described as the “greater fool” theory.
U.S. banking regulators have hardly been blind to this reality. In a joint statement issued Jan. 3, the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency offered a one-stop list of the biggest problems with crypto, many of which paralleled the concerns raised by the Treasury.
They mentioned “the risk of fraud and scams,” “inaccurate or misleading representations and disclosures,” “unfair, deceptive, or abusive” practices and the risks of “cyber-attacks, outages, lost or trapped assets, and illicit finance.”The implicit goal of the joint statement was to warn regulated banks and their customers that they probably should steer clear of crypto at any price.
The immediate trigger for the change of heart in Washington was plainly the November implosion of FTX, a crypto firm whose founder, Sam Bankman-Fried, had been a prominent advocate for looser regulations on crypto firms. Bankman-Fried is free on bail while awaiting trial on criminal charges.
Yet FTX’s bankruptcy was only one of a string of crypto firm failures during 2022, and the precursor of further bankruptcies. Perhaps more important, many of the operational shortcomings allegedly found in FTX’s operations are common in the field, including inadequate record keeping and security arrangements, and commingling of customers’ and firms’ assets.
Consumer interest in crypto was probably destined to wane even without the FTX collapse. Last year’s Super Bowl telecast brimmed with high-priced commercials from crypto firms featuring celebrities such as Matt Damon and Larry David. Supernovas like 2022-vintage crypto are always destined to fade to some extent; this year’s Super Bowl was crypto-free.
In recent weeks and months, however, U.S. regulators have taken strong steps to inoculate the larger banking and financial system against contamination by crypto firm failures.
In January, the Fed rejected an application by Custodia Bank for membership in the Federal Reserve System. Custodia, which is chartered by Wyoming, aimed to issue its own crypto token. “The firm’s novel business model and proposed focus on crypto-assets presented significant safety and soundness risks,” the Fed said.
Last week, New York State banking regulators ordered Paxos Trust to cease issuing crypto tokens with a brand connected to France-based Binance, the world’s largest crypto exchange, because of “several unresolved issues” related to the two firms’ relationship. The Securities and Exchange Commission has also informed Paxos that it may face an SEC lawsuit for selling unregistered securities — the crypto tokens.