Regulatory Interventions in Cryptocurrency: Congress Yet to Act Amid Rising Incidents

Amidst the unending scandals shaking the cryptocurrency sector, lawmakers in Washington seem disinclined to enact legislation that would establish a formal regulatory framework for the industry.

The recent agreement for Binance to pay billions in a settlement to U.S. authorities, coupled with the resignation of its CEO, marks the latest development in the industry’s turmoil. This follows the conviction of FTX’s Sam Bankman-Fried for customer fund misappropriation and the downfall of several smaller crypto firms, resulting in substantial financial losses for investors.

Last year, when the cryptocurrency market crashed and numerous firms failed, Congress pondered various regulatory strategies for the future of the industry. Nonetheless, most of these initiatives have stalled, overshadowed by this year’s chaos fueled by geopolitical conflicts, inflation, and the impending 2024 elections. There seems to be a declining interest in establishing new regulations.

U.S. Treasury Secretary Janet Yellen, in a news conference announcing Binance’s $4 billion settlement, emphasized that existing regulations are applicable to cryptocurrencies. She stated, “Today’s actions demonstrate our commitment to enforcing robust existing regulations to deter illegal activities facilitated by cryptocurrency entities.” Yellen highlighted the government’s readiness to update and utilize its regulatory tools to tackle emerging threats in cases of egregious violations.

In October, over 100 primarily Democratic lawmakers urged the White House to take responsibility for preventing the use of cryptocurrencies in financing terrorism.

Binance’s CEO, Changpeng Zhao, admitted guilt to a felony for not preventing money laundering on the platform. Zhao resigned following Binance’s admission of violating the Bank Secrecy Act and other sanction-related regulations. The settlement terms mandate Binance, a Cayman Islands company, to undergo five years of monitoring and ensure its complete withdrawal from the U.S. market.

U.S. Attorney General Merrick Garland described the settlement as one of the largest corporate penalties in U.S. history. This development comes as major crypto entities, including Binance, Coinbase, and FTX, face severe legal challenges, investigations, or have collapsed.

In the absence of Congressional action, federal agencies like the Securities and Exchange Commission (SEC) have initiated enforcement measures against the industry. This includes lawsuits against prominent exchanges such as Coinbase, Binance, and Kraken. Recently, the SEC charged Kraken for operating as an unregistered securities exchange. PayPal, too, received a subpoena from the SEC concerning its stablecoin.

Some Congress members have criticized the SEC’s approach, arguing for Congressional authorization for such actions or suggesting that cryptocurrencies be regulated as commodities, which would fall under the Commodity Futures Trading Commission’s purview. Senators Debbie Stabenow (D-Mich.) and John Boozman (R-Ark.) proposed last year to transfer cryptocurrency regulatory authority to the CFTC.

Congress, despite proposing measures, has not yet acted. A major hindrance is the lack of consensus on defining cryptocurrencies and opposition from influential Congressional members, such as Sen. Sherrod Brown (D-Ohio), who chairs the Senate Banking Committee. Brown, a critic of cryptocurrencies, has not advanced any legislation through his committee, emphasizing the need to address crypto-related scams and frauds.

In the House, a bill for regulating stablecoins passed the House Financial Services Committee but has yet to gain traction in the Senate or the White House.

Consumer advocates question the necessity of new regulations and the usefulness of cryptocurrencies. Dennis Kelleher, president of Better Markets, urges for more stringent industry compliance to standard financial practices.

Some analysts, however, view the recent legal developments as a turning point for cryptocurrency. Yiannis Giokas of Moody’s Analytics interprets the Binance settlement as marking a new phase in digital currency evolution, akin to the transition from the dot-com era. He anticipates stricter regulations and enforcement to ensure compliance and consumer protection in this increasingly mainstream and institutionally involved space.

Frequently Asked Questions (FAQs) about Cryptocurrency Regulation

More about Cryptocurrency Regulation

• Cryptocurrency Industry Challenges
• U.S. Congress and Crypto Regulation
• Binance’s Legal Settlement
• SEC’s Role in Crypto Enforcement
• Congressional Views on Crypto
• Consumer Advocacy and Crypto Regulation