November Proves to Be a Cruel Month for Crypto
Last month has been nothing short of disastrous for the cryptocurrency industry, as a series of scandals and regulatory actions have exposed the pervasive criminal behavior and lack of utility within the asset class. From fraud convictions to legal violations, the crypto industry is under fire from multiple government agencies.
Convictions and Charges Rock the Industry
The month started with the conviction of scam artist Sam Bankman-Fried, who was found guilty on seven fraud and conspiracy counts related to his management of FTX, a once-promising crypto exchange. Shortly after, the Securities and Exchange Commission (SEC) charged Kraken, another crypto trading platform, with a multitude of legal violations. The SEC alleges that Kraken has been operating as a broker, dealer, exchange, and clearing agency simultaneously, posing potential conflicts of interest that harm customers.
Adding fuel to the fire, the US government announced a $4 billion settlement of money laundering charges against Binance, the largest remaining crypto platform after the collapse of FTX. As part of the settlement, Binance agreed to cease operations in the US and implement an independent compliance monitor for five years. Its founder, Changpeng Zhao, pleaded guilty to a felony money-laundering charge and agreed to pay a $50 million fine. Federal prosecutors are seeking an 18-month prison sentence for Zhao.
Crypto’s Criminal Associations and Lack of Purpose
These recent scandals, combined with previous bankruptcies in the crypto industry, paint a damning picture of an asset class infected with criminal behavior and lacking a useful purpose. Unlike traditional financial instruments, cryptocurrencies’ values are arbitrarily set by their promoters. They do not generate earnings, have limited industrial or commercial uses, and are not easily used for everyday transactions.
The mounting evidence against cryptocurrencies has raised concerns among regulators, who are considering stricter regulations or even an outright eradication of the asset class.
Regulatory Fears and Industry Lobbying
Crypto advocates are worried that US regulators are moving towards stricter regulations that could stifle innovation and potentially lead to the collapse of the industry. Lobbyists, backed by significant funding from the crypto industry, have been pressuring lawmakers to adopt a more lenient approach to regulation.
However, some lawmakers have voiced their concerns about the industry’s influence on the political landscape. Several members of Congress, both Democrats and Republicans, have received substantial campaign contributions from the crypto industry. This raises questions about the motivations behind their support for the industry and their resistance to stricter regulations.
Questioning Crypto’s Claims of Innovation
Despite crypto proponents’ claims of innovation and financial revolution, the recent scandals highlight the industry’s inability to operate without government oversight. The cases against Bankman-Fried, Zhao, and Kraken demonstrate that existing laws and regulations are sufficient to police the crypto market. The industry’s calls for a unique type of oversight with less regulation are unjustified.
Furthermore, the utility of cryptocurrencies remains dubious. Volatility, lack of transparency, and susceptibility to scams undermine their claims of being a reliable alternative to traditional financial systems. While there may be limited use cases for crypto, they pale in comparison to the established benchmarks and safeguards provided by stocks, bonds, and precious metals.
A Call for Compliance
As the crypto industry faces mounting scrutiny and calls for stricter regulations, Treasury Secretary Janet Yellen has made it clear that virtual currency exchanges and fintech firms must adhere to existing rules. The industry must play by the same rules as other financial institutions if it wishes to be part of the US financial system and serve US customers.
Ultimately, the recent scandals and regulatory actions expose the need for oversight and accountability within the crypto industry. The argument for less regulation and self-trust in the industry’s technology has been debunked by the prevalence of criminal behavior. There is nothing new under the sun when it comes to financial crime, and the crypto industry must face the consequences of its actions.