By bringing lawsuits against the two largest exchanges, Binance and Coinbase, the United States Securities and Exchange Commission (SEC) has stepped up its regulatory onslaught on the cryptocurrency business. A chronology of major events from 2022 to the present shows that these current occurrences are, however, just a part of a longer-term problem that has affected the crypto industry.
The story starts in May 2022 when TerraUSD, a stablecoin linked to the US dollar, saw its price fall below its $1 peg, sparking a large sell-off and a startling $40 billion loss in value. A Hong Kong-based cryptocurrency lender named Babel Finance also suspended withdrawals in June of the same year claiming extraordinary liquidity difficulties after cryptocurrency lender Celsius stopped all withdrawals owing to abnormal market circumstances. In addition, Three Arrows Capital, a cryptocurrency hedge fund that had a sizable stake in TerraUSD, stopped making loan payments to Voyager Digital, which led to a British Virgin Islands court ordering Three Arrows Capital to be liquidated.
Further issues arose in July 2022 when Voyager Digital filed for Chapter 11 bankruptcy protection in response to a bank run in an effort to maximize value for stakeholders. Due to a lack of liquidity in November, FTX, a significant cryptocurrency exchange with headquarters in the Bahamas, accepted Binance’s offer to acquire it. Binance eventually withdrew from the agreement, claiming that the problems were insurmountable. FTX sought Chapter 11 bankruptcy protection as a result of this. The unrest continued into December with the bankruptcy filing of US-based crypto lender BlockFi and the arrest of FTX CEO Sam Bankman-Fried in the Bahamas after his extradition to the US.
The SEC’s cases against Genesis and Gemini in January 2023, charging both companies of selling unregistered securities, heightened the regulatory environment. Due to DCG’s ongoing liquidity problems, CoinDesk, a well-known cryptocurrency news website, placed itself up for sale in January. Genesis then requested Chapter 11 bankruptcy relief.
The SEC accused Terra’s creator Do Kwon of deceiving US investors who bought his coins in February. Kwon was sought by several nations, but his whereabouts were unclear at the time. Sam Bankman-Fried, a co-founder of FTX, was the subject of a fresh indictment from US authorities in the same month that included new criminal accusations. Nishad Singh, a co-founder of FTX, eventually entered a guilty plea to fraud-related charges and worked with the prosecution to establish a case against Bankman-Fried.
The SEC informed Coinbase of expected enforcement action in March, continuing the regulatory pressure. Do Kwon was detained in Montenegro at this period for fraud while trying to depart the nation with a fake passport. Additionally, Binance was sued by the Commodity Futures Trading Commission (CFTC) for selling unregistered cryptocurrency futures to US dealers. Prosecutors then charged Sam Bankman-Fried with buying access to blocked cash by bribing Chinese authorities.
Bankman-Fried asked a court to throw out the majority of the criminal allegations against him in May, claiming they were unduly dramatic and turned civil and regulatory matters into federal crimes. Furthermore, Do Kwon was given bail in Montenegro, enabling him to be under house arrest until his case is heard. The SEC recently sued Binance and Coinbase, accusing both exchanges of running unregistered securities exchanges in the US and showing a flagrant disregard for legal requirements, on June 5 and June 6, respectively.
The growing regulatory onslaught in the US is a reflection of the difficulties the bitcoin market has encountered, which has been plagued by events like price swings, liquidity problems, bankruptcies, and legal conflicts. These developments are changing the crypto industry’s landscape, forcing exchanges and market players to negotiate a challenging and constantly changing regulatory structure.