Despite the ongoing scandals in the cryptocurrency sector, policymakers in Washington seem uninterested in passing legislation that would establish a formal structure for the industry.
The most recent development is Binance’s agreement to pay a multi-billion dollar settlement to U.S. officials and the stepping down of the company’s CEO this week. Prior to this, FTX founder Sam Bankman-Fried was found guilty of embezzling billions from clients and several smaller cryptocurrency companies collapsed, resulting in significant losses for investors.
Last year, there was a decline in cryptocurrencies and several companies went bankrupt. As a result, Congress explored various methods to regulate the industry in the future. However, these attempts have been largely unsuccessful, particularly in light of the current year’s turmoil caused by international conflicts, rising prices, and the impending 2024 election.
Currently, there appears to be a decreased desire for additional regulations.
On Tuesday, U.S. Treasury Secretary Janet Yellen declared at a press conference announcing a $4 billion agreement with Binance that the current rules are applicable to cryptocurrency. “I believe our actions today demonstrate our commitment to enforcing robust regulations that are already established to prevent unlawful transactions facilitated by cryptocurrency entities,” she stated.
“When faced with situations of severe violations,” she stated, “it is essential that we continuously update and adapt our tools to effectively combat emerging threats. We are confident in the strength of our tools and have been actively implementing them to combat this form of misconduct.”
A group of over 100 lawmakers, mostly from the Democratic party, stated in October that it is the White House’s duty to prevent the use of cryptocurrency for financing terrorism. They urged the Biden Administration to take action.
On Wednesday, Changpeng Zhao, the CEO of Binance, admitted to a felony charge for not stopping money laundering on the platform. As a result, Zhao resigned from his position and Binance acknowledged breaking the Bank Secrecy Act and potentially disregarding sanctions programs by not establishing protocols for identifying suspicious transactions.
Under the terms of the settlement, the U.S. Treasury announced that Binance will undergo five years of supervision and “significant efforts to comply,” which includes ensuring that Binance completely withdraws from the United States. Binance is registered as a limited liability company in the Cayman Islands.
Attorney General Merrick Garland of the United States declared the agreement to be one of the most significant financial penalties ever imposed on a corporation in the country’s history.
Currently, the most prominent players in the cryptocurrency industry, namely Binance, Coinbase, and FTX, have faced significant legal issues, are being investigated, or have completely failed.
In the absence of Congressional involvement, government agencies such as the Securities and Exchange Commission have taken it upon themselves to regulate the industry. This has resulted in legal action being taken against major cryptocurrency exchanges like Coinbase, Binance, and Kraken. Recently, the SEC filed a lawsuit against Kraken for running its crypto trading platform without proper registration as a securities exchange.
In a recent filing with securities regulators, PayPal disclosed that it received a subpoena from the SEC regarding its PayPal USD stablecoin. The company has stated that it is working with authorities to comply.
Certain members of Congress have expressed opposition to the SEC’s actions regarding cryptocurrency. They believe that the SEC must have approval from Congress in order to pursue those who engage in illegal activities, or that cryptocurrency should be regulated similarly to commodities, which falls under the jurisdiction of the Commodity Futures Trading Commission. These arguments have been presented by legislators from both political parties.
Last year, Senators Debbie Stabenow (D-Mich.) and John Boozman (R-Ark.) suggested transferring the regulatory power for cryptocurrencies like bitcoin and ether to the CFTC. Stabenow and Boozman are in charge of the Senate Agriculture Committee, which oversees this regulator’s decisions.
Although Congress has put forward ideas, they have not taken action yet. This is partly due to the fact that lawmakers cannot agree on what exactly cryptocurrency is, and also because certain influential members of Congress oppose it entirely.
The Senate Banking Committee’s chair, Sen. Sherrod Brown from Ohio, is among the members who are against this.
Brown has been highly skeptical of cryptocurrencies as a concept and he’s been generally reluctant to put Congress’ blessing on them through legislation. He’s held several committee hearings over cryptocurrency issues, ranging from the negative impact on consumers to use of the currencies to fund illicit activities, but has not advanced any legislation out of his committee.
In response to Bankman-Fried’s conviction, Brown stated that Americans are still suffering financial losses from crypto scams and frauds on a daily basis. He emphasized the need for stricter regulations to prevent abuse and prevent the crypto industry from creating its own set of rules.
Proposed in the House, a legislation aiming to establish regulatory boundaries for stablecoins, which are digital currencies backed by tangible assets such as the U.S. dollar, was approved by the House Financial Services Committee earlier this year. However, the bill has not caught the attention of the White House or the Senate.
Consumer advocates are doubtful about the necessity of implementing new regulations, as well as the practicality of cryptocurrency.
According to its website, Dennis Kelleher, the president of Better Markets, a nonprofit organization that strives to create a more stable financial system for Americans, stated that the unregulated and potentially illegal actions within the crypto industry will persist and escalate until law enforcement, regulators, and government officials demand compliance with the same standards expected of other lawful individuals and businesses in the financial sector.
Some experts believe that the legal cases and penalties related to fraud indicate a new chapter for the advancement of cryptocurrency.
Yiannis Giokas, a senior director at Moody’s Analytics who specializes in digital assets, stated that the resolution reached between U.S. authorities and Binance signifies the conclusion of a significant period.
“As digital currencies gain more popularity and attract institutional investors, there will likely be stricter regulations and enforcement to ensure adherence to laws and protection for consumers. This recent development is a pivotal moment, similar to what we saw during the transition from the .com to post-.com era.”