The Crypto Crackdown Begins

There was a lot of joy online when the US Department of Justice announced the arrest of the founder of crypto exchange Bitzlato last week. Unpronounceable, unfamiliar, and unlike all the much bigger fish (like Binance) making headlines, Bitzlato looked like a little fry. The fact that Bitcoin resumed its march above $21,000 seemed to confirm this.

But that ignores the big picture. In the first weeks of 2023, the watchdogs have done a lot. On January 3, a joint statement from US banking regulators warned the industry about crypto risks seeping into the banking system.

Then came a $100 million settlement with Coinbase Global over weak internal controls, a lawsuit against the Winklevoss twins’ Gemini and broker Genesis for allegedly selling unregistered securities, and a $45 million settlement with the platform. loan company Nexo (which has ceased operations in the United States). Summonses are pouring out.

The wheels of justice are turning slowly — Gemini and Genesis’ complaint came too late for customers to fight to recover $900 million in trapped funds — but they’re speeding up now. Regulators like the SEC feel rightly vindicated by the events of the past year, which saw a widespread loss of confidence in crypto fail to snowball into a broader economic crisis. The collapse of FTX demonstrated the failures of the industry but also the benefits of a tough regulatory line on exchanges, such as when the SEC intervened behind the scenes in 2021 to prevent Coinbase from launching its own crypto lending product.