The Securities and Exchange Commission (SEC) has been increasing its scrutiny and regulatory action against the cryptocurrency industry. In recent years, the SEC has taken several high-profile cases against cryptocurrency companies and individuals who violated securities laws.
The U.S. Securities and Exchange Commission (SEC) has shown their concern multiple times about cryptocurrencies for a number of reasons, including:
- Lack of Regulation: Because cryptocurrencies are decentralised, it is difficult for regulators to effectively control them. The SEC is worried that the cryptocurrency industry’s lack of regulation may result in fraud, market manipulation, and other illicit actions.
- Investor Protection: The SEC is in charge of defending investors in the American financial system. The government is worried that investors could not completely comprehend the dangers associated with investing in cryptocurrency and that they might be subject to fraud and other dishonest practises.
- Volatility: Cryptocurrencies are known for their high volatility, with prices often fluctuating wildly within short periods of time. The SEC is concerned that this volatility poses a high risk to investors.
- Initial Coin Offerings (ICOs): The SEC has been particularly concerned about the rise of ICOs, which are used to raise funds for new cryptocurrency projects and has cautioned that many ICOs may be carrying out illegal operations.
- Market Manipulation: The SEC is concerned that the cryptocurrency market may be vulnerable to manipulation, particularly through practices such as pump-and-dump schemes, where traders artificially inflate the price of a cryptocurrency before selling it off at a profit.
- Ripple Labs: The SEC filed a lawsuit in December 2020 stating that Ripple Labs, the entity that created the XRP cryptocurrency, had made an unregistered securities offering. Ripple Labs has refuted the SEC’s charges, and the litigation is still pending.
- Coinbase, in Sept 2021 announced that it has received a Wells Notice from the Securities and Exchange Commission (SEC) regarding its Lend product. Lend is not a security, and Coinbase has stated that it will challenge the SEC’s designation of Lend as such.
- Kraken announced that it had to discontinue to offer and Sale of Crypto Asset Staking-As-A-Service Program since it is deemed as unregistered by SEC and Pay $30 Million to Settle Charges
- Genesis Global Capital, LLC and Gemini Trust Company, LLC: were charged by the SEC in January 2023 of selling securities to retail investors without registering their offers through the Gemini Earn crypto asset loan scheme.
- Paxos Trust Company, the company that issues Binance USD, on February 13, 2023 received a Wells notice from the SEC, marking it as the most recent stablecoin crackdown (BUSD). While Paxos claims that BUSD is not a security and is therefore not subject to SEC regulation, some lawyers disagree, raising concern that other prominent stablecoin issuers like Circle’s USD Coin (USDC) might follow.
- Voyager & Binance.Us Deal: On February 23, 2023 SEC comes out against Binance.US’s $1 billion deal to buy a bankrupt crypto firm Voyager’s assets calling the deal unlawful. The bankruptcy judge Michael Wiles in a recent hearing mentioned that he is absolutely shocked by SEC’s objection this deal. Binance CEO CZ reaffirmed support for voyager deal amid the SEC pushback.
Amid the heavy crackdown from SEC, the crypto companies stand strong and are showing interest in fighting back against any irregular action. Recently a Kraken Exec said, “Crypto Has More Appetite To Sue SEC Than Ever Before” and Coinbase has shown similar interests as well..
On the other side, Grayscale has recently engaged in legal conflict with the SEC over the GBTC Bitcoin ETF.
In Conclusion, under Gary Gensler’s leadership from April 2021, the SEC has dramatically increased its scrutiny over cryptocurrency. Being a former professor of blockchain and digital currencies at the Massachusetts Institute of Technology (MIT), Gensler has said that he thinks cryptocurrencies have the ability to spur transformation in the financial sector but also come with major hazards for investors. Gensler is adamantly pushing for the strictest cryptocurrency regulations but he has not explicitly stated that he is “against” crypto.
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