Regulatory tensions have greatly affected cryptocurrency prices, even though this struggle is not new. Threats of strict regulations in a market that values autonomy, privacy and a lack of bureaucracy have frightened users and investors alike. In the US, there has been an increase in regulation by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). In the UK, the Financial Conduct Authority (FCA) has made strict registration requirements for exchanges to comply with anti-money laundering regulations.
Gary Gensler, chairman of the SEC, for example, has said that many crypto assets can be considered unregistered assets, which suggests an investor protection gap in the cryptocurrency market, known for its vulnerability to fraud and manipulation. New laws, such as the Infrastructure Investment and Jobs Act in the US in 2021, which defines digital asset dealers as “brokers” and requires transactions over $10,000 to be declared to the IRS, are an attempt to mitigate this. Actions against big names in the crypto world are intensifying, moving from heavy fines to prison sentences. And it seems that no one will escape this scrutiny.
The director of Binance
The most recent sentence was handed down to Binance founder Changpeng Zhao. A four-month prison sentence for failures to combat money laundering. This shows that the authorities are willing to go beyond the application of financial sanctions, and intend to also apply legal punishment to high-level cryptocurrency executives.
Binance, under Zhao’s management, was fined more than $4 billion due to these violations, in addition to a personal fine of $50 million for Zhao, as reported by Reuters. This case resonates as a warning to other executives in the sector and also alerts cryptocurrency enthusiasts to future regulatory action.
The fall of FTX
But Zhao wasn’t the first big name to face the rigours of the law. Sam Bankman-Fried, founder of FTX, was found guilty of fraud in one of the most closely watched trials in the crypto space. He was found guilty of seven charges of fraud and conspiracy in a Manhattan federal court after a month-long trial.
The allegations centred on Bankman-Fried diverting client funds for his own use, as well as other fraudulent activities related to the management of FTX and Alameda Research, a cryptocurrency hedge firm he also founded. Prosecutors emphasised that he used client accounts as “his personal piggy bank”. Sentenced to 25 years in prison, the former cryptocurrency king filed an appeal with the court in April this year.
This regulatory rigour aims to protect traders by maintaining the integrity of the sector with clear rules and active oversight.
Ripple vs SEC
Ripple, meanwhile, faces an ongoing legal battle with the SEC, which accuses it of selling unregistered securities. Although it has achieved some victories, the case is still awaiting resolution. In July 2023, the Judge Analisa Torres ruled that the sales of XRP to retail buyers did not constitute sales of securities, but institutional sales did.
The case is complex and shouldn’t have a final decision until 2026, with many appeals on the way. However, there is talk of fines that could reach $1.95 billion. Even though it is in the top 10 cryptocurrencies in terms of market capitalisation, this should have a major impact on the platform’s token.
The Coinbase case
Coinbase is also in the middle of regulatory investigations with its “staking-as-a-service” programme in the spotlight. In a legal dispute with the SEC, the company has been accused of operating as an unregistered stock exchange, broker and settlement agency.
This case is signalling the complexity of the regulatory environment in the United States, where the lack of clarity over the legal status of the various types of crypto-assets continues to challenge companies in the sector.
The regulatory future of the cryptos
The trend of tightening sanctions against big names in cryptocurrency suggests a future where regulatory compliance will be more rigorous. The authorities have shown that they will not hesitate to use any means necessary to guarantee transparency and fairness in the cryptocurrency market. The cryptocurrency industry, historically marked by almost total freedom, may face a scenario where strict regulation becomes the norm, not the exception.
This will not only affect company executives, but all investors and market participants. The security and sustainability of the crypto asset sector will depend on companies’ ability to adapt to a regulatory environment that is still being built. All of this is a call for all the entities involved to strengthen their compliance and transparency systems.
The digital asset market is growing, and each time something new emerges, such as Bitcoin ETFs, AI-based trading robots and cryptocurrency perpetual contracts. This regulatory rigour aims to protect traders by maintaining the integrity of the sector with clear rules and active oversight.
