When FTX collapsed in November, it was a seismic event for the crypto industry. Many called it the “Lehman moment”.
The comparison is broadly true: an industry giant collapsed, the contagion spread, and regulators who were reluctant to act suddenly had a clearer target and a wave of public outrage to bolster their cause.
And now, we may officially be entering the Dodd-Frank era of crypto (Dodd-Frank, of course, the 2010 legislation being passed by the US Congress in response to lax oversight in parts of the banking sector that plunged the world into one of the world’s worst crises. financial history.)
As the crypto market has exploded into a trillion-dollar industry, proponents are struggling with a regulatory infrastructure ill-equipped to handle it and widely distrustful of their fundamental argument as the future of finance.
In the three months since FTX filed for bankruptcy, state and federal regulators have ramped up their rhetoric and their actions to keep the fast-growing digital asset industry in check — a shift that, unsurprisingly, isn’t going too well with crypto companies.
On Tuesday (14), the US Senate Committee on Banking, Housing and Urban Affairs held a hearing entitled “Crypto Crash: Why financial safeguards are needed for digital assets”.
“While the crypto contagion did not infect the broader financial system, we have seen glimpses of the damage it could have caused if crypto migrated to the banking system,” said committee chairman Senator Sherrod Brown in his keynote address.
“These crypto catastrophes have exposed what many of us already knew: digital assets – cryptocurrencies, stablecoins and investment tokens – are speculative products run by reckless companies that put Americans’ hard-earned money at risk.”
Stablecoins in the spotlight
The hearing came a day after a regulatory crackdown on one of the world’s most popular stablecoins. On Monday, New York regulators ordered blockchain firm Paxos to stop issuing BUSD, also known as Binance USD, citing “various unresolved issues” related to Paxos’ oversight of its relationship with Binance.
So-called stablecoins are digital tokens that maintain a 1-to-1 backing with US dollars or another fiat currency. Investors typically buy them to store money and facilitate trades within the cryptocurrency infrastructure, making them a bedrock of the crypto ecosystem.
The New York Department of Financial Services did not immediately respond to a request for comment. CNN . Paxos told customers they could redeem their BUSD until February 2024, with options to redeem funds in US dollars or convert their tokens into Pax Dollar, another stablecoin issued by the company.
At the same time, the Securities and Exchange Commission (SEC) plans to sue Paxos, claiming that BUSD should have been registered under federal security laws.
Paxos “categorically disagrees” with the SEC, it said in a statement on Monday, “because BUSD is not a value under federal security laws.” The company said it would “engage” with the SEC on the matter and is prepared to “litigate vigorously if necessary.” The company declined to comment beyond its statement.
The BUSD news clearly disturbed investors. Binance, which partnered with Paxos to launch the stablecoin in 2019, suffered one of its worst days in terms of withdrawals on Monday, with $873 million in net outflows, according to data provider Nansen.
taxes increase
The crackdown on BUSD and Paxos is just the latest example of regulatory squeeze in recent months — actions that are sowing confusion and frustration among cryptocurrency proponents, many of whom have sought regulatory clarity for years.
“Enforcement regulation is tricky for cryptocurrency enthusiasts,” Marcus Sotiriou, market analyst at digital asset brokerage GlobalBlock, said in a note. “People are desperately trying to figure out how to legally offer a product while not being given any guidance.”
In recent weeks, the SEC has relied on a crazy enforcement strategy that critics say unfairly targets the infant industry.
Last week, the SEC reached a $30 million settlement with crypto platform Kraken that will force the company to undo its “staking” practice, which allows investors to earn passive income on their crypto holdings.
The deal immediately raised questions about other exchanges offering “staking,” which cryptocurrency advocates say is vital to supporting the healthy functioning of some virtual currencies.
In January, regulators warned US banks and other market participants about the risks of fraud, volatility and poor risk management in the world of cryptocurrencies.
“It is important that risks related to the crypto industry that cannot be mitigated or controlled do not migrate to the banking system,” they said in a statement – the first joint statement on crypto by the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of of the Currency Controller.
*With information from Michelle Toh and Brian Fung of CNN
Source: CNN Brasil
I am an experienced journalist, writer, and editor with a passion for finance and business news. I have been working in the journalism field for over 6 years, covering a variety of topics from finance to technology. As an author at World Stock Market, I specialize in finance business-related topics.
