U.S. Regulators Are Cleaning Up the Crypto Industry

February 14, 2023 Press Release

Washington, D.C. — In response to a series of actions by U.S. regulatory agencies to protect the American economy from dangerous and illegal activity in the cryptocurrency industry, the American Economic Liberties Project released the following statement.

“Gary Gensler and other financial regulators have taken decisive action to protect the American financial system from the threat of crypto,” said Shahid Naeem, Policy Analyst at the American Economic Liberties Project. “With existing laws and authority, regulators are stopping rampant crypto lawlessness and making clear that any crypto firm that refuses to follow the law will face the consequences.”

Earlier this month, the Securities and Exchange Commission shut down crypto exchange Kraken’s “staking” program, in which customers gave the firm their crypto assets in exchange for earning returns. In January, the SEC sued crypto firms Genesis and Gemini for an illegal crypto-lending program, and is reportedly preparing a lawsuit against Paxos, the the issuer of third-largest stablecoin Binance USD, for violating investor protection laws.

The SEC has been joined by banking regulators at the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corp., who earlier this year warned banks against engaging with crypto assets. The agencies highlighted the dangerous cocktail of key risks crypto poses to the financial system – including fraud, scams, significant volatility, run risk, contagion potential, institutional mismanagement, governance flaws, and misleading and false advertising. Bank regulators’ stance followed comments made in January by Senator Elizabeth Warren at an Economic Liberties event on crypto regulation, who said, “For all their talk of innovation and financial inclusion, crypto industry giants — from FTX to Celsius to Voyager — are collapsing under the weight of their own fraud, deceit and gross mismanagement,” adding,  “And when they sink, they take a lot of honest investors down with them.”

Also this year, the Federal Reserve issued a policy statement discouraging banks from engaging with crypto assets and denied crypto firm Custodia membership in the Federal Reserve system, while the Department of Justice shut down Hong-Kong based crypto exchange Bitzlato for money laundering and opened a probe into crypto-friendly Silvergate Bank, which took out billions in loans from Federal Home Loan Banks to stay afloat after the collapse of the FTX exchange.

As regulators work to bring order to an industry brimming with risk and crime, some firms are taking notice. Just last week, PayPal announced it would suspend plans to issue its own stablecoin.

Last December, Economic Liberties released a policy Quick Take, “Gary Gensler Got It Right,” highlighting how SEC Chair Gensler helped contain the crypto meltdown and protect the real economy from its effects.

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The American Economic Liberties Project works to ensure America’s system of commerce is structured to advance, rather than undermine, economic liberty, fair commerce, and a secure, inclusive democracy. Economic Liberties believes true economic liberty means entrepreneurs and businesses large and small succeed on the merits of their ideas and hard work; commerce empowers consumers, workers, farmers, and engineers instead of subjecting them to discrimination and abuse from financiers and monopolists; foreign trade arrangements support domestic security and democracy; and wealth is broadly distributed to support equitable political power.