Regulatory Drama in US Crypto Space: Major Players Make Strategic Moves Amidst Growing Concerns
a16z Expands Offshore
Written by Van
Major players in the cryptocurrency space are making strategic moves and grappling with regulatory concerns. Venture capital firm Andreessen Horowitz, known as a16z, has announced plans to establish its first international office outside the United States.
This decision aligns with a growing trend of US companies exploring opportunities beyond their domestic borders, potentially driven by regulatory actions targeting crypto firms. The UK has been selected as the location for a16z's international office, and the firm has engaged in discussions with key UK stakeholders, including government officials, policymakers, and regulatory bodies such as the Financial Conduct Authority.
With a focus on establishing a predictable business environment and embracing web3 technology while ensuring consumer protection, a16z remains committed to working with US policymakers to achieve clearer regulations. Additionally, the firm intends to launch the "Crypto Startup School" in London in 2024, providing valuable resources and support to aspiring entrepreneurs in the Web3 sector. The overwhelming response of over 8,000 applications for the most recent iteration underscores the enthusiasm surrounding this program.
Shortly after a16z’s move, the UK's Financial Conduct Authority (FCA) proposed rules to discourage the promotion of cryptocurrencies as an inflation hedge. The FCA argues that limited-supply cryptocurrencies like Bitcoin lack sufficient data to support such claims, and their volatility can mislead investors.
The rules include a ban on free non-fungible token (NFT) giveaways and call for stablecoin issuers to demonstrate legitimate claims of stability or links to fiat currency. The FCA aims to ensure accurate marketing and prevent misleading claims in the crypto industry.
eToro and Robinhood Delist Tokens
Meanwhile, eToro and Robinhood, popular trading platforms in the US, have faced regulatory hurdles leading to the delisting of certain tokens. In response to SEC lawsuits labeling Algorand, Decentraland, Polygon, Dash, Cardano, and Solana as securities, eToro has halted purchases of these tokens for its US customers. Robinhood has also ceased support for Cardano, Solana, and Polygon due to similar concerns.
Although the assets were officially delisted on July 12, eToro US users can still hold and sell them. These decisions come after a thorough review of crypto listings by both platforms, reflecting their commitment to navigating the evolving regulatory landscape while working with authorities to shape the future of the crypto industry. It is worth noting that eToro had previously delisted Ripple's XRP in December 2020 following the SEC's lawsuit against Ripple Labs.
Gensler's Statements Spark Controversy, and Lawmakers Push for Change
The crypto community found itself scrutinizing the statements and actions of Gary Gensler, the Chair of the US Securities and Exchange Commission (SEC). In a video from 2018 that recently resurfaced on social media, Gensler unequivocally stated that Bitcoin, Ether, Litecoin, and Bitcoin Cash are "not securities."
However, Gensler's enforcement actions and lawsuits against various crypto entities during his tenure at the SEC have raised questions about his stance on cryptocurrencies beyond Bitcoin. While the SEC has designated at least 68 cryptocurrencies as securities, the four mentioned by Gensler in the 2018 video are not among them. Gensler has faced criticism and calls for his removal from office, with critics in the crypto space accusing him of hypocrisy.
In a surprising twist, Republican lawmakers have introduced legislation seeking to remove Gary Gensler from his position as the Chair of the SEC. The proposed "SEC Stabilization Act" aims to restructure the SEC by adding a sixth commissioner and limiting the number of seats held by a single political party. However, the bill's success hinges on gaining bipartisan support in the Democrat-controlled Senate. This move is a direct response to the discontent expressed by the crypto industry regarding the SEC's enforcement actions and lawsuits initiated under Gensler's leadership.
The regulatory challenges faced by crypto firms have sparked debates and criticisms from industry leaders. Mark Cuban, the billionaire investor and owner of the Dallas Mavericks, has expressed dissatisfaction with the lack of clear registration guidelines for crypto companies enforced by the SEC. Cuban suggests that the SEC's "Framework for 'Investment Contract' Analysis of Digital Assets" fails to provide adequate guidance, leading to uncertainty in the industry.
U.S. Senator Cynthia Lummis has echoed these sentiments, highlighting the SEC's lack of a robust legal framework or compliance guidance. On the other hand, Gensler has maintained that a registration process exists while acknowledging that Coinbase and Robinhood's attempts were rejected.
Binance's Legal Battle with SEC Intensifies Amid Regulatory Uncertainty and Liquidity Challenges
The tensions between Binance and the SEC have intensified, with Binance.US now requesting the court to reject the proposed temporary restraining order by the SEC. Binance.US argues that the order would not only hamper its ability to defend itself but also effectively shut down its business. The US subsidiary of Binance has hired prominent legal defense, including former SEC enforcement co-director George Canellos, to combat allegations of operating as an unregistered securities exchange.
Binance.US maintains that cryptocurrency is not inherently a security and cites the existence of other cryptocurrency exchanges operating without interference from the SEC as evidence. The company asserts its cooperation with the SEC's investigation, providing extensive data on its operations, while denying mishandling or misuse of customer assets.
As the legal battles and regulatory uncertainty unfold, Binance.US, the US-based subsidiary, has experienced a significant drop in liquidity. The aggregated market depth for 17 tokens has decreased by nearly 80% in the past week, falling from $34 million to $7 million. Market makers and traders are reportedly leaving the exchange, resulting in a noticeable price discrepancy between Binance.US and other platforms. Coinbase's market share has simultaneously increased, possibly due to market makers shifting their activities in response to regulatory concerns or other factors.
Meanwhile, Binance saw a significant drop in open interest, with Bitcoin's open interest declining by over 25%. Furthermore, Binance Nigeria Limited has been ordered to halt its operations. Both Binance and Coinbase have experienced substantial outflows, losing over $4 billion following the SEC lawsuits. Professor Carol Alexander of the University of Essex argues that Binance may not lose to the SEC in its lawsuit due to the regulator's financial limitations.
Coinbase CEO Stays Committed; JPMorgan Warns of Potential Pressure on Crypto Exchanges
Amidst the turmoil, Coinbase CEO Brian Armstrong maintains his commitment to the United States despite the regulatory challenges. Armstrong expresses confidence in the crypto industry's ability to achieve the "right outcome" in its battle with regulators, although he acknowledges the need for clearer regulations and a registration process for crypto firms. He suggests that Congress should intervene and draft legislation to resolve the ambiguity surrounding the classification of crypto assets. In the meantime, Coinbase will continue operating in the US, fighting the SEC lawsuit, and relying on its diversified revenue sources and international presence.
The regulatory landscape surrounding US-based cryptocurrency exchanges, including Coinbase and Binance.US, is becoming increasingly uncertain. JPMorgan strategists have suggested that these exchanges may face regulatory pressure from the US Securities and Exchange Commission (SEC) to register as brokers. This shift in the SEC's position could potentially result in most cryptocurrencies being treated as securities, imposing additional burdens and costs on the crypto industry. However, it may also lead to enhanced transparency and investor protection.
The SEC's recent lawsuits against Binance, Binance.US, and Coinbase have sent shockwaves through the industry. The regulatory watchdog has accused these exchanges of violating US securities laws. To address these challenges, JPMorgan strategists emphasize the urgent need for US lawmakers to develop a clear regulatory framework that can accommodate the unique characteristics of cryptocurrencies. Without such clarity, the crypto industry in the US may face a relocation of activities to decentralized entities outside the country, while venture capital funding for the industry remains limited.
Regulatory Resistance, DAO Liabilities, and Global Perspectives Shape the Crypto Landscape
The SEC's proposed rule change to expand the definition of exchanges, covering platforms trading crypto asset securities and some decentralized finance (DeFi) platforms, has faced resistance. The DeFi Education Fund (DEF) has expressed concerns, arguing that applying existing regulatory regimes to DeFi would exclude it from the US market. The comment period for the proposed changes is ongoing, and stakeholders are voicing their opinions. Paradigm, a leading crypto investment firm, has criticized the SEC's proposal, calling it "haphazard" and urging its withdrawal. The outcome of these discussions will shape the regulatory environment for both centralized and decentralized exchanges.
The legal liabilities faced by decentralized autonomous organizations (DAOs) are also in the spotlight. The recent case involving Ooki DAO and the Commodity Futures Trading Commission (CFTC) serves as a reminder that DAOs and their members can be held liable for illegal activities unless the DAO has registered as an entity with limited liability. The case highlights the potential personal liability of DAO members and underscores the importance of adhering to legal regulations.
In another development, Apple has issued a warning to the decentralized social media app Damus, urging compliance with its guidelines or facing removal from the App Store. The warning specifically relates to Damus's "zaps" feature, which allows users to earn bitcoin tips on posts. Apple argues that tips associated with receiving digital content must use in-app purchases. Damus developers anticipate removing the zaps feature to remain compliant.
Internationally, Animoca Brands, an operator in the crypto space, remains undeterred by the SEC's classification of its SAND cryptocurrency as a security. The company operates globally and is primarily focused on non-US markets due to the perceived regulatory challenges in the US. The outcome of legal proceedings is not expected to significantly impact the company's daily operations.
After such chaos, former Coinbase CTO and crypto investor Balaji Srinivasan suggests that the US no longer holds global veto power over technology. He urges market participants to explore opportunities beyond the US, pointing to the difficulties of obtaining regulatory clarity from the SEC. Srinivasan believes that the US administration's focus on central bank digital currencies (CBDCs) and surveillance may not have the same global impact as in the past. Bitcoin's price resilience, despite legal challenges and obstacles, strengthens the case for exploring new crypto hubs outside the US.
FAQ about US Crypto Regulation
Q: What is a16z's plan in response to regulatory concerns in the cryptocurrency space?
A: a16z, the venture capital firm, has announced plans to establish its first international office in the UK. They are engaging in discussions with key stakeholders, including government officials and regulatory bodies, to establish a predictable business environment and work towards clearer regulations. They also plan to launch the "Crypto Startup School" in London in 2024 to support entrepreneurs in the Web3 sector.
Q: Which tokens have been delisted by eToro and Robinhood due to regulatory hurdles?
A: eToro has halted purchases of Algorand, Decentraland, Polygon, Dash, Cardano, and Solana for its US customers in response to SEC lawsuits. Robinhood has also ceased support for Cardano, Solana, and Polygon due to similar concerns.
Q: What actions have been taken against Gary Gensler, the Chair of the SEC, and how has it affected the crypto community?
A: Gary Gensler's statements and enforcement actions have raised questions about his stance on cryptocurrencies. While he stated that Bitcoin, Ether, Litecoin, and Bitcoin Cash are "not securities" in a 2018 video, the SEC has designated at least 68 cryptocurrencies as securities. There have been calls for his removal from office, with critics accusing him of hypocrisy.
Q: What is the status of Binance's legal battle with the SEC, and how has it impacted liquidity?
A: Binance.US, the US subsidiary of Binance, is requesting the court to reject the proposed temporary restraining order by the SEC. They argue that it would hinder their ability to defend themselves and shut down their business. Binance.US has experienced a significant drop in liquidity, with a noticeable price discrepancy compared to other platforms. The legal uncertainties have led to market makers and traders leaving the exchange.
Q: How does JPMorgan view the potential regulatory pressure on US-based crypto exchanges?
A: JPMorgan strategists suggest that US crypto exchanges, including Coinbase and Binance.US, may face regulatory pressure from the SEC to register as brokers. Treating most cryptocurrencies as securities could impose additional burdens and costs on the industry. JPMorgan emphasizes the need for US lawmakers to develop a clear regulatory framework specific to cryptocurrencies to maintain transparency and investor protection.
As the legal battles, regulatory proposals, and calls for global expansion persist, the crypto industry remains at a critical juncture. The outcome of these developments will not only shape the regulatory environment in the US but also influence the global trajectory of cryptocurrencies and their underlying technologies.
This article has been refined and enhanced by ChatGPT.