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This is official. The gloves are off, together with the talks about fostering innovation and promises of equal treatment.

The US government has launched a full-scale assault on its crypto industry, coordinating it across the SEC, the Fed, and other financial institutions.

Since crypto’s inception, only a few notable attacks were worth writing about (SEC v Ripple among them), but 2023 marked a whole new era of aggressive anti-crypto actions. Together with a major financial crisis developing in the background, this paints an interesting picture of the US government’s perception of crypto… as a threat ?

We have put together a timeline of regulators’ attacks on the US crypto sector since the beginning of the year, and reflected on the goals they could hope to achieve and the ways the sector would react.

The timeline

🔸January 18.  A crypto-focused bank Custodia was denied membership and a master account by the Fed. Custodia, which had been suing the Fed since 2022 for “unlawfully delaying its decision”, filed an amended complaint for an alleged Fed conspiracy to block it. On March 24, the Fed released a harsh response, noting “significant deficiencies in Custodia’s ability to manage the risks of its day-one activities”, despite the fact that Custodia is a fully-reserved bank, basically immune to bank runs.

🔸February 4. The Office of the Comptroller of the Currency—a US Treasury bureau tasked with overseeing federal banking – let expire the application of Protego, a fully-reserved crypto bank. The same office granted conditional approval of Protego becoming a national trust bank one year prior.

🔸February 9. One of the oldest and most reputable actors in the space, a centralized exchange Kraken paid the SEC a $30 million fine, settling an enforcement action alleging its staking program sold unregistered securities. The exchange has permanently shut down the program in the US.  

🔸February 12. The SEC sent a Wells notice to Paxos, the issuer of BUSD stablecoin, also known as Binance USD. A Wells notice is a letter informing the recipient that the SEC is planning to bring an enforcement action against them, and it usually means trouble. Soon after, Paxos announced it stopped working with Binance and halted BUSD emissions.

🔸February 16. The SEC charged Do Kwon and his company Terraform with defrauding investors. On March 23, Do Kwon was arrested in Montenegro.

🔸March 9. The Biden administration proposed a budget including a 30% tax on electricity costs for Bitcoin miners.

🔸March 9. New York State Attorney General Letitia James filed suit against KuCoin, a centralized exchange, for allegedly violating securities laws by offering cryptoassets that meet the definition of a security (including ETH), without registering with the attorney general’s office.

🔸March 12. Treasury, Fed, and FDIC issued a joint statement concerning the SVB, while also announcing the closure of Signature Bank, citing “systemic risks”. This closure is seen by some as political, as the bank’s board member claimed that it was not insolvent.

🔸March 20.  Published by the Council of Economic Advisers, the annual Economic Report of the President slams crypto, declaring that so far it hadn’t brought “none of the benefits” it was appraised for.

🔸March 21. Jared Grey, the head of a decentralized exchange SushiSwap, was subpoenaed by the SEC.

🔸March 22. The SEC issued Coinbase a Wells notice, warning the company that it identified potential violations of the US securities law. This comes 2 years after the SEC reviewed the exchange “in detail” and forced it to abandon its Lend service project.

🔸March 22. The SEC charged Justin Sun and three of his companies (Tron Foundation, BitTorrent Foundation, and Rainberry (formerly BitTorrent)  for the “unregistered offer and sale of crypto asset securities”, as well as “fraudulently manipulating the secondary market”.

🔸March 23. The SEC issued an investor alert, stating that “Investments in crypto asset securities can be exceptionally volatile and speculative, and the platforms where investors buy, sell, borrow, or lend these securities may lack important protections for investors.”

Why crypto ?

The regulators are likely to continue this flow of charges, subpoenas, and rebuttals – because they can.

Gary Gensler is the person who can label any product security, and he can rightfully demand its registration. He is also the person who can decide on which registration filings can be approved. Things are even easier with the Fed or the OCC, who can arbitrarily decline the approvals of financial companies related to crypto, thus pushing the industry out of the banking system.

This makes the process arbitrary and totally dependent on the political will, which is currently becoming openly anti-crypto.

The timing is bad for the establishment: everything that the crypto community (and many regular people) predicted back in 2020, when the Central Banks unleashed crazy money printing, is now happening. Inflation, quick depreciation of government debt securities, falling of financial system based on that debt…

Three US banks have already fallen, together with the banking behemoth Credit Suisse across the pond. Another American bank First Republic can very well join them soon, and some unsettling rumors about Deutsche Bank add to the apocalyptic mood, all while the Fed is about to print more dollars… the crypto rhetoric is coming back into the spotlight with a big “I told you so” sign.

What’s next for the US crypto industry?

As the regulators are ramping up, major US crypto players, like Coinbase’s Brian Armstrong, or Custodia’s Caitlin Long, take it to Twitter to urge the Americans to speak up and contact their congressmen.

The movement looks like the one launched in the wake of the vote on the Infrastructure Bill in 2021, containing an important anti-crypto piece. It failed then, and it may very well fail now, which means that US crypto companies must prepare for Plan B – moving overseas 🚢

Coinbase has already announced it will expand to Brazil, and Circle is about to open a branch in Paris.

Pro-crypto Senators are still a small minority, even if it’s a vocal one, and for the moment it seems that they cannot do much to change things.

⚖️ The judiciary system, albeit very slow, could be better equipped.

Last September, the judge in SEC v Ripple (allegations that $XRP is a security) case denounced the SEC’s tactics as “hypocrisy”, accusing the agency of putting its own goals before the “faithful allegiance to the law.”

This month, the judge in Grayscale v SEC (for SEC’s rejection of spot Bitcoin ETF) stated that the SEC did not provide evidence contrary to Grayscale’s arguments.

It is still unclear how these two cases will end, but in early March, the bankrupt crypto lender Voyager Digital won court approval to sell its assets to Binance, despite the SEC’s active resistance.

Year 2023 promises to be decisive in many ways, both for the traditional financial system and crypto.

As the trap (involuntarily?) set by the Fed in 2020 is now closing on the financial system, many seek alternatives. Crypto proposes a new way of distributing power, and even though the people who currently enjoy it may not like the idea, they may be obliged to accept a will coming from the people. Until then, however, crypto will be under attack.