2022 is nearing an end and might go down as one of the most eventful years for the crypto industry owing to the prolonged winter that had wiped more t
2022 is nearing an end and might go down as one of the most eventful years for the crypto industry owing to the prolonged winter that had wiped more than 70% of the market cap from the top and the barrage of crypto firms imploding. This was mainly due to internal mismanagement and unchecked decision-making process.
Among all the ups and downs, one thing has remained clear — retail customers have lost a significant amount of money due to a lack of regulatory oversight.
While lawmakers in the United States promised to bring crypto under regulatory purview many times this year, after every major crypto fallout like Terra and FTX, we see another round of regulatory discussions without any concrete action.
The role of regulators has been heavily scrutinized in the wake of FTX’s collapse due to the close ties between former CEO Sam Bankman Fried and policymakers. Some reports indicate that eight congresspeople, five of whom received donations from FTX, tried to stop the Securities and Exchange Commission from investigating FTX.
Breaking: 8 Congress Members tried to stop the SEC from inquiring into FTX by questioning the SEC’s authority to inquire about Crypto
5 of those 8 members also received campaign donations from FTX, ranging from $2,900 to $11,600
— Nancy Pelosi Stock Tracker ♟ (@PelosiTracker_) November 25, 2022
Coinbase CEO Brian Armstrong was not very pleased with regulators’ failure to avoid another contagion and claimed that enforcement action against U.S.-based companies for the irregularities committed by an offshore crypto exchange makes no sense.
Armstrong also blamed the SEC for failing to come up with timely regulations, driving out nearly 95% of the trading activities to offshore exchanges.
https://t.co/0HxlRiI6Sy was an offshore exchange not regulated by the SEC.
The problem is that the SEC failed to create regulatory clarity here in the US, so many American investors (and 95% of trading activity) went offshore.
Punishing US companies for this makes no sense.
— Brian Armstrong (@brian_armstrong) November 10, 2022
Jim Preissler, co-founder of decentralized exchange service provider SOMA.finance, explained that most don’t fully understand the role of regulators such as the SEC.
He told Cointelegraph, “The SEC sets rules and guidelines. For example, the SEC has been repeatedly clear that other than perhaps Bitcoin, they see every other crypto offering as a potential security. Violators then face potential enforcement, and in extreme cases, they can bring in the DOJ for criminal cases. Right now, the SEC has a huge backlog of violators to potentially go after. They are still doing the precedent-setting types of cases — initial coin offerings, Influencers, exchanges, lending products, etc:”
“This will set the groundwork for future enforcement. As the SEC ramps, we could see the cases coming even faster and more furious.”
As noted by Armstrong, the inability of regulators and policymakers to come up with clear crypto regulations has been a primary driver behind investors going to offshore exchanges.
Preissler noted that regulation already exists in the United States — exchanges need to have either a state-level money transfer license, a banking license to offer cryptocurrencies or a registration as an alternative trading system (ATS) with the SEC if they are offering blockchain-based securities.
He added that any further regulation could be on top of existing ones or potentially supplant them. However, “without one or both of those categories in the U.S., an exchange would be in violation of existing regulations.”
Patrick Daugherty, a former SEC lawyer, told Cointelegraph that “the SEC and the CFTC [Commodity Futures Trading Commission] have jurisdiction over token sales by or through non-U.S. platforms and exchanges to U.S. persons. Although the details vary depending upon the particular platform or exchange, many U.S. persons are customers of non-U.S. platforms and exchanges, giving the U.S. agencies jurisdiction over them.”
When asked about why SEC failed to take any timely actions against off-shore exchanges, Daugherty recommended a congressional hearing and explained:
“These are questions that need to be asked by House and Senate committee members in their oversight capacity. There is no effective private redress against the SEC in a case like this. That’s what Congressional oversight is for.”
The CFTC and SEC have faced greater scrutiny in the wake of the collapse of the FTX crypto exchange as the exchange was lobbying for making the CFTC the chief oversight committee for the crypto market. Republican lawmakers have accused the SEC chair of coordinating with FTX “to obtain a regulatory monopoly.”
U.S. regulators must put better safeguards in place
The process of regulations is time-consuming due to the number of parties involved and all legislation must pass through Congress before being implemented. However, regulators like the SEC can use court injunctions…
cointelegraph.com