The U.S. government has just issued a strong message to the cryptocurrency market, which is worth around $1.4 trillion.
When crypto investors expected to move on from the historic conviction of Sam Bankman-Fried, the disgraced founder and former CEO of the defunct FTX crypto exchange, U.S. officials demonstrated yet another show of force against crypto-related criminal behaviour.
Changpeng Zhao, the billionaire founder of Binance, the world’s largest cryptocurrency exchange, pleaded guilty on Tuesday to failing to run an effective anti-money laundering program. This could have allowed criminal actors of all types to move money via the site.
Here are five lessons from the largest penalty ever issued on a money services corporation in U.S. history, which happens to be a cryptocurrency firm.
It will take harder for the crypto industry to recover from the damage it has done
Zhao and Bankman-Fried were widely regarded as the faces of the cryptocurrency business. With his guilty plea and Bankman-Fried’s conviction, good actors in the cryptocurrency business will have to make a more persuasive case to doubters that the two were exceptions, not the standard.
In light of Tuesday’s revelation, Coinbase CEO Brian Armstrong seized the opportunity to differentiate his crypto exchange from Binance, which acknowledged participating in anti-money laundering, unlicensed money transmission, and sanctions breaches.
“Since the inception of Coinbase in 2012, we have taken a long-term approach.” “I knew we had to embrace compliance to become a generational company that would stand the test of time,” Armstrong wrote in a post on X Tuesday afternoon.
“Today’s news confirms that going the hard way was the correct decision.” “We now have the opportunity to write a new chapter in the history of this industry,” he continued.
Simultaneously, the government entities in charge of crypto regulation and compliance do not want people to forget about Bankman-Fried and Zhao.
“In just the past month, the Justice Department has successfully prosecuted the CEOs of two of the world’s largest cryptocurrency exchanges in two separate criminal cases,” Attorney General Merrick Garland said during a press conference on Tuesday. “The message should be clear: Using new technology to break the law does not qualify you as a disruptor.” It turns you into a criminal.”
This isn’t the FTX firestorm for crypto
On Tuesday, cryptocurrency prices fell as investors processed the latest regulatory news from Washington, DC. By Wednesday, they had made a blazing recovery.
After the U.S. Department of Justice stated that it had brought charges against Zhao following a multi-year investigation into Binance, the Binance token plummeted roughly 6% at first. Prices have risen 3.5% as of Wednesday morning.
Other cryptocurrencies dropped on Tuesday as a bigger Fed probe included crypto businesses such as Kraken and Tether.
Bitcoin fell by around $420, or 1.1%, to $37,071. Meanwhile, Ethereum plummeted by $40, or 2%, to $1,997 per token.
Both Bitcoin and ethereum were operational again by Wednesday. Bitcoin was up 2.4%, while Ethereum was up 5%.
So, what accounts for the swings?
According to some reports published late Tuesday, Zhao’s agreement with the Department of Justice may allow him to maintain the bulk of Binance’s shares. This gave investors optimism, and they were also keen to see the lengthy probe conclude.
Overall, crypto has had a successful year. Bitcoin is up over 120% year to date, while Ethereum has increased by approximately 70% over the same period.
Although Binance is leaving the U.S., it is not going away
Binance’s agreement with the government forces it to suspend operations in the United States.
On Tuesday evening, users in the United States were confronted with a message on the Binance.com website stating that it “is unavailable in your country or region.” However, there is some fine print.
“If you are in the United States or select U.S. territories, Binance.US is a U.S. regulated platform where you can buy, trade, convert, and stake crypto with low fees,” the announcement said.
Binance.US is a Binance subsidiary established in 2019 to “serve U.S. consumers and adhere to U.S. regulations,” according to a blog post on the site.
According to Treasury officials, Binance is unaffected by Tuesday’s news since it is a registered money services firm. This implies that users in the United States may still purchase and sell cryptocurrency using Binance.
Agencies are now taking an extremely hard stand against cryptocurrencies
Tuesday’s declaration shows the federal government’s stern attitude toward unlawful cryptocurrency operations. In other words, the federal government, which includes the Treasury Department and the Securities and Exchange Commission, is not messing around.
Kraken, another cryptocurrency exchange, was sued by the SEC just this week because it conducts business as an unregistered securities exchange. The agency’s lawsuit claims that the exchange mixed its clients’ assets with its holdings.
The SEC has previously filed a lawsuit against Kraken. It’s only one of many lawsuits the agency has brought against cryptocurrency firms like Coinbase and Bittrex this year. The SEC’s lawsuit against Binance for allegedly breaking laws protecting investors is still pending.
The federal agency is anticipated to continue aggressively policing crypto companies by taking them to court despite some negative decisions this year.
If Tuesday’s significant statement revealed anything, it is that the federal government—rather than just the SEC—is attempting to prevent cryptocurrency fraud.
The Treasury Department, the Commodities Futures Trading Commission, and the Justice Department are also included in this. Even the Justice Department has a National Cryptocurrency Enforcement Team tasked with actively locating and investigating crimes involving digital assets.
“This combined effort represents the whole-of-government approach that we are taking to combat corporate crime, even though criminal and civil enforcement actions are subject to different legal standards,” Garland stated on Tuesday.
There is still a craving for new regulation
U.S. authorities already have a handy arsenal of legislation to combat financial crimes, including ones that make bank fraud and money laundering illegal.
That’s exactly how the government used a cryptocurrency exchange to facilitate the first-ever business settlement.
Deputy Attorney General Lisa Monaco stated at the press conference on Tuesday, “You have seen both in our actions today, and prior cases that we will be relentless in using every tool that we currently have to deploy against those who seek to use technologies in a way that abuse those platforms… or [that] doesn’t prevent the use of those platforms for illicit activities.”
However, officials stated that more regulations could be added.
The need for “regulatory clarity” is not new. New laws governing cryptocurrencies may make it easier for authorities to separate fraudulent schemes from real ones, benefiting investors and law enforcement.
When and how thoroughly crypto legislation would be implemented are unknown. There are two methods to go about it: first, through Congress, and second, through agency rulemaking at the SEC or CFTC. If challenged in court, these would still be susceptible to judicial scrutiny.
“My position has always been to close some of these gaps, particularly concerning commodity tokens. If we can accomplish that—clearly with Congress’s assistance—we can stop these actions before they start and won’t need to intervene after the fact,” CFTC Chair RostinBenham stated on Tuesday.