On the Crumbling TradFi and the State of Crypto Regulation in the US
Cryptocurrency has been a hot topic for years. The lack of regulation in the industry has been both a blessing and a curse, allowing for innovation and growth, but also leading to scams and illegal activities. However, in 2023, the US government finally decided to take action to tighten the regulation of the crypto market.
One of the main reasons for the tightening of regulation is the increasing number of scams and frauds in the industry. According to a report by the Federal Trade Commission, cryptocurrency scams have caused losses of over $80 million to consumers in the past few years. The lack of regulation has made it easy for scammers to operate and target vulnerable investors. The new regulations aim to protect consumers by requiring crypto companies to register with the Securities and Exchange Commission (SEC) and comply with anti-fraud and anti-money laundering laws.
Another reason for the tightening of regulation is the potential threat that cryptocurrencies pose to the stability of the financial system. The rapid rise of cryptocurrencies has led to concerns that they could destabilize the traditional financial system which in itself has been quite fragile. In the case of Silicon Valley Bank and Signature Bank, the gist of their downfall are all due to liquidity issue and depositors are pulling out en masse. The government is worried that these banks have exposure to crypto hence further exacerbating the liquidity risk in case the market takes a downturn. The new regulations aim to address this by requiring crypto exchanges to implement measures to prevent market manipulation and to ensure that they have sufficient capital reserves to cover potential losses.
The new regulations are expected to have a significant impact on the crypto market, with some experts predicting that many companies will struggle to comply with the new rules. However, the regulations are also expected to bring more legitimacy to the industry and attract more institutional investors.
Although the regulation is still forming, it has taken its toll on an established crypto project that has been around for years. Take Sushiswap, which has been a subject of scrutiny from SEC over the past few months. Sushi Swap Head Chef Jared Grey is no longer feeling “inspired” after a wave of regulatory crackdowns on crypto exchanges, including the decentralized exchange (DEX) he manages, has put immense pressure on the crypto industry, according to comments he made during the protocol’s ask-me-anything call on Thursday. They also have prepared 4 million USD via their token as legal defense funds which doesn’t sit well with their community.
Plenty of projects have been in the crosshair of regulators as well, namely Ripplelabs, Tornado, Coinbase, Binance US to name a few. Yet those that are in the crosshairs indeed deserve their fate such as what happened with FTX and Alameda.
For better or worse, the tightening of US regulation on crypto in 2023 is a necessary step to protect consumers and the stability of the financial system. While it may cause some short-term disruption, it will ultimately bring more transparency and legitimacy to the industry. As the crypto market continues to evolve, it is important that the regulatory framework evolves with it to ensure that it operates in a safe and secure manner.
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