Key Insights from the Most Significant Crypto Crackdown in American History
The US government sends a strong message to the $14 trillion cryptocurrency market, prolonging the industry's struggle to regain trust Binance's US exit won't end its presence, while increased regulatory enforcement indicates a tougher crackdown The appetite for new regulations remains
The US government has made a strong statement to the cryptocurrency world, which is valued at approximately $1.4 trillion. Despite the hopes of crypto investors to move past the conviction of Sam Bankman-Fried, the former CEO of FTX crypto exchange, US officials have once again demonstrated their commitment to combating criminal activity in the crypto market.
Changpeng Zhao, the billionaire founder of the world's largest cryptocurrency exchange, Binance, admitted guilt on Tuesday for not upholding an efficient anti-money laundering program, which could have enabled various bad actors to utilize the platform for money transactions.
Binance CEO Zhao Changpeng was in attendance at the Viva Technology conference for innovation and startups at the Porte de Versailles exhibition center in Paris, France on June 16, 2022. Photo credit: Benoit Tessier/Reuters.
The CEO of the world's largest cryptocurrency exchange has admitted to money laundering violations. Here are five key points from the largest penalty ever imposed on a money services business in United States history, which happens to involve a crypto firm:
Its going to take even more time for the crypto industry to wipe away its tainted image
Zhao and Bankman-Fried were widely regarded as the prominent figures in the crypto industry. However, with his guilty plea and Bankman-Fried's conviction, credible individuals in the crypto industry will now need to put forth a stronger argument to convince skeptics that the two were outliers rather than the typical representation.
On Tuesday, following the news, Brian Armstrong, CEO of Coinbase, used the opportunity to differentiate the crypto exchange he leads from Binance, which has admitted to involvement in anti-money laundering, unlicensed money transmitting, and sanctions violations.
"In 2012, when Coinbase was founded, we knew that taking a long-term view was essential. Embracing compliance was necessary for us to become a company that would withstand the test of time," Armstrong stated in a post on Tuesday afternoon.
"The latest news confirms that choosing the challenging path was the best decision. We now have the chance to begin a new era for this industry," he remarked.
Meanwhile, government agencies responsible for crypto regulation and compliance are keen to ensure that Bankman-Fried and Zhao are not overlooked.
"In the span of just one month, the Justice Department has achieved convictions of the top executives of two of the biggest cryptocurrency exchanges in the world through two distinct criminal trials," announced Attorney General Merrick Garland during a press conference on Tuesday. "The lesson here is unmistakable: Employing innovative technology to violate the law does not label you as a revolutionary. It categorizes you as a lawbreaker."
Former Binance CEO Changpeng Zhao has admitted to not upholding an adequate anti-money laundering program and could potentially be sentenced to a maximum of 18 months in prison.
For crypto, this isnt the FTX firestorm
The photo illustration depicts a Binance logo on a smartphone, with programming code in the background. (Image credit: Omar Marques/SOPA Images/LightRocket/Getty Images)
Binance, a troubled cryptocurrency exchange, has sparked concerns in the crypto community. Cryptocurrencies saw a decline on Tuesday following regulatory news from Washington DC, but quickly rebounded by Wednesday.
The price of Binance coin fell approximately 6% after the US Department of Justice revealed charges against Zhao following a lengthy investigation into Binance. However, by Wednesday morning, prices had rebounded, increasing by 3.5%. Additionally, other cryptocurrencies were affected on Tuesday as federal authorities expanded their crackdown to include crypto companies such as Kraken and Tether.
Bitcoin's value decreased by approximately $420, or 1.1%, settling at $37,071. In the same period, Ethereum also experienced a drop of $40, or 2%, to $1,997 per coin.
However, by Wednesday, both Bitcoin and Ethereum had rebounded. Bitcoin saw a 2.4% increase, while Ethereum surged by 5%.
What is the reason for the fluctuations?
Late reports on Tuesday indicated that Zhao's agreement with the Department of Justice might enable him to retain the majority of Binance's shares, which boosted investors' optimism. Additionally, they were eager to see the lengthy investigation come to a conclusion.
Overall, its been a good year for crypto. Bitcoin is up by about 120% year-to-date. Ethereum has risen nearly 70% over the same period.
Binance is exiting the US, but it isnt going away
Binance has agreed with the government to stop its operations in the US. On Tuesday evening, individuals located in the US were met with a message on the Binance.com website stating that it is "unavailable in your country or region." However, there is some fine print to consider.
If you reside in the United States or certain U.S. territories, Binance.US offers a U.S. regulated platform for purchasing, trading, converting, and staking cryptocurrencies at a minimal cost," the statement added. Binance.US was established as a subsidiary of Binance in 2019 with the purpose of catering to American customers and complying with U.S. regulatory requirements.
The feds are cracking down a lot harder on crypto these days
According to Treasury officials, Binance.US remains unaffected by the announcement made on Tuesday, as it operates as a registered money services business. Therefore, individuals in the US can continue to engage in buying and selling cryptocurrency through Binance.
Tuesday's announcement exemplifies the federal government's strong position on illegal crypto-related activities. In other words, the agencies involved, from the Securities and Exchange Commission to the Treasury Department, are taking a serious approach. For instance, the SEC recently filed a lawsuit against Kraken, a crypto exchange, claiming that it is functioning as an unregistered securities exchange. The lawsuit also accuses the exchange of mixing customers' assets with the company's own holdings.
This is not Kraken's inaugural encounter with an SEC lawsuit. In fact, it is just one of a series of legal actions that the agency has initiated this year against crypto companies like Bittrex and Coinbase. The SEC's litigation against Binance for purportedly breaching investor-protection laws is still ongoing.
Binance is exiting the US as part of the agreement the crypto exchange made with law enforcement agencies.
Tiffany Hagler-Geard/Bloomberg/Getty Images
Despite experiencing some negative decisions this year, the SEC is anticipated to persistently crackdown on crypto companies by pursuing legal action against them. However, Tuesday's significant announcement made it evident that it's not solely the SEC, but the entire federal government that is working to prevent crypto misconduct.
This includes the Justice Department, the Commodity Futures Trading Commission, and the Treasury Department. The Justice Department even has a National Cryptocurrency Enforcement Team that is actively identifying and investigating criminal cases involving digital assets. "While criminal and civil enforcement actions are subject to different legal standards, this collective effort represents the whole-of-government approach that we are taking to combat corporate crime," stated Garland on Tuesday.
There is still an appetite for new regulation
US officials already have a nifty toolbox of regulations at their disposal to root out financial crimes, such as laws criminalizing money laundering and bank fraud.
This is exactly how the federal authorities obtained the initial corporate settlement with a cryptocurrency exchange. "You have witnessed both in our recent actions and in previous cases that we will be persistent in utilizing all available resources against those who misuse technologies on these platforms or fail to prevent the use of such platforms for illegal activities," Deputy Attorney General Lisa Monaco stated during Tuesday's press conference.
However, officials have indicated that there is potential for implementing new regulations. The demand for "regulatory clarity" has been longstanding, and implementing new regulations for cryptocurrency could aid in distinguishing between genuine cryptocurrency products and criminal activities, benefiting both investors and law enforcement.
The timing and method of implementing comprehensive crypto regulation remain uncertain. One potential approach could involve agency-level rulemaking at the SEC or CFTC, although this would be open to judicial review if contested in court. Alternatively, regulation could also be achieved through Congress.
CFTC Chair Rostin Benham expressed his support for addressing gaps in regulation, particularly regarding commodity tokens. He emphasized the importance of preventing undesirable actions through proactive measures, with the assistance of Congress.
