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Cryptography faces existential threats as crackdowns gain momentum

Cryptocurrency companies are competing with lobbyists for subpoenas, which could be an existential battle over how to regulate a trillion-dollar industry.

Lobbyists were overwhelmed by companies seeking agents in Washington last month as regulators threatened cryptocurrency companies with lawsuits and cease and desist orders. Current and former enforcers say these warnings are probably just the beginning.

Over the last decade, the cryptocurrency market has grown from a lesser-known project shared among engineers and liberals to a large, largely unregulated industry. But even if the sector digitally records ownership and finds an innovative way to send money cheaply, it has launched savings accounts and mutual funds. Regulators say they should follow the same rules as traditional financial networks.

As the crypto industry prepares for a regulatory battle, some lobbyists who asked to withhold their names to discuss client issues were hiring crypto companies in August. He said he was so indignant that he had to turn down potential clients. Some cryptocurrency companies have said they have been or are expected to be targeted by regulatory agencies, lobbyists said.

Earlier this month, the Securities and Exchange Commission sent a notice to Coinbase Global Inc. that it could be sued for offering a proposed account with high interest rates.

Owen Tedford, an analyst at Washington-based Beacon Policy Advisors, said: “It’s no surprise that Coinbase’s notifications are a warning shot for the entire industry.”

According to Senate filings, nearly one-third of new registrations for financial industry lobbyists in August and September were for crypto companies or advocacy groups. In August, Coinbase hired two new companies that doubled its presence in Washington, including Andrew Olmem, Deputy Director of the National Economic Council at the Trump White House. Facebook Inc is planning to launch a new cryptocurrency. Affiliates of Diem Association, a corporate group that includes, have hired new lobbyists, as well as Digital Currency Group, a crypto-focused venture capital firm.

SEC Chair Gary Gensler drew his first blood last week. On Friday, Coinbase quietly abandoned its rental product and announced a move with a short update to a blog post a few months ago.

“Cryptocurrency lending may be the easiest way for the SEC to enter the industry, but it’s very clear that they are considering cryptocurrencies themselves,” said the SEC, which heads the Healthy Markets Association. Former adviser Tyler Gellasch said. Members include large asset management companies. When many cryptocurrencies are considered securities, exchanges such as Coinbase and other cryptocurrencies “cannot make money as they do today.”

BlockFi Inc. Cryptocurrency lending companies such as and Celsius Network Inc. have already earned more than $ 35 billion in deposits in traditional cryptocurrencies such as Bitcoin and Stablecoin, and their value is fixed at $ 1. It is considered a replacement for fiat money.

Cryptographic industry executives suspect that traditional financial rivals, such as major banks, are responsible for driving regulators.

At the “Ask Me Anything” event in September with customers, Celsius Network CEO Alex Masinsky said he believed bank executives complained to the SEC and state regulators about crypto lenders. ..

“These people have the largest lobbyists working for them at both the state and federal levels, so we have to double our efforts,” said Masinsky. “We win. The battle exceeds all the money in the world, right?”

The recent battle is over crypto lenders, which sometimes offer double-digit yields to depositors. The two companies say they can do that by lending deposits at higher rates to institutional investors who need to borrow crypto for their transactions.

Regulators believe that many companies should register their products as securities and are subject to additional disclosure and monitoring. The product may be sold as a replacement for a bank’s savings account, and some regulators said investors could be fooled into thinking that they were taking little risk.

The controversy came to mind earlier this month when Coinbase CEO Brian Armstrong accused the SEC of “rough action” in a series of tweets and argued that Coinbase’s proposed account was a security. ..

Gensler said at a Senate bank hearing last week that Coinbase has not registered with the SEC, even though the exchange’s “tens of tokens” may be securities. A Coinbase spokeswoman said he did not believe the company offered securities on its platform.

Cryptocurrency executives say they are frustrated that regulators are threatening to sue them, rather than giving guidance on how to stay within the scope of the law.

At the SALT conference in New York last week, BlockFi CEO Zac Prince said the SEC and other regulators need to be clear about what the industry is allowed to do. Five states have already filed proceedings against his company, accusing them of providing unregistered securities to their residents. The prince of the meeting said federal guidance was needed, not state action. BlockFi announced on Wednesday that New Jersey has agreed to extend the order to suspend the provision of accounts until December.

Even some companies using similar products submitted to the SEC are seeking guidance from more agencies. For example, Circle Internet Financial Inc. has offered high-yielding deposit accounts to corporate clients and notified the SEC under an exemption for accredited investors, said CEO Jeremy Aller.

“I want to understand if U.S. regulators want to regulate cryptocurrency lending, work with the industry to define what they care about there, and define rules of involvement,” Allaire said. .. “The United States is very reluctant to clarify digital assets.”

Enforcers believe that the law is already clear on their part. During a bank hearing, Gensler pointed out a long-standing court decision that helped define the scope of government agencies, stating that many crypto products, and even cryptocurrencies, probably fall under that authority.

Gellasch, a former SEC lawyer, said that if an exchange were found to offer securities, it could be forced to register with an agency.

Some crypto advocates in Washington hope that spats, such as between the SEC and Coinbase, will be brought to court so that judges, rather than agency employees, can judge the company’s limits. Stated.

Jerry Brito, executive director of Coyne Center, a cryptocurrency think tank, said:

Joe Rotunda, executive director of the Texas Securities Commission, said other crypto lenders should not expect his agents or other states to curb even if the SEC begins to move. Said.

“I’m very relieved to see federal regulators scrutinizing cryptocurrency deposit accounts,” said his agency and other companies offering similar products. Rotunda said he was still investigating. “At the same time, they haven’t done anything yet.”



Cryptography faces existential threats as crackdowns gain momentum

Source link Cryptography faces existential threats as crackdowns gain momentum

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