Do Kwon – South Korean cryptocurrency entrepreneur and co-founder of Terraform Labs (Terra Luna) – is facing trial after being arrested at the airport in Montenegro on March 24. STRINGER/AFP via Getty Images
The collapse of the crypto market last year sparked a series of bankruptcies that almost completely reshaped the digital asset industry. This year, government watchdogs appear to be on the scene to get the job done.
This past week, the industry was hit with another deluge of enforcement news, from the SEC’s threat to take legal action against Coinbase Inc. and her lawsuit against the Tron blockchain network to the apprehension of crypto fugitive Do Kwon. Even famous crypto promoters like actress Lindsay Lohan and rapper Soulja Boy got caught up in the crackdown.
As headlines piled up, the developments put a lid on a rally in Bitcoin that had pushed the oldest token back to the closely watched $30,000 level. a breakdown Friday morning on crypto exchange Binance, spot trading took more than two hours offline on a platform whose market dominance has only grown as other players have folded, adding to the sour mood. Bitcoin floated around $27,500 on Saturday.
The collision course between the US government and the true believers’ vision of a system where money can be freely exchanged around the world without “censorship” by authorities was precipitated by the failure of the Terra blockchain’s stablecoin to reach its $1 link and the bankruptcy of FTX last year, which together evaporated nearly $2 trillion in digital wealth. This month’s implosion of crypto-friendly banks Silvergate Capital Corp. and Signature Bank provided extra fuel.
Central to many of the recent actions is the SEC’s decision to treat many cryptoassets as securities that must be registered with the agency and subject to all associated regulations. Needless to say, digital asset enthusiasts were livid over much of the week’s news flow, especially when it comes to publicly traded Coinbase, which says it has repeatedly tried to get in touch with the regulator to no avail.
“A reprehensible amount of resources and brainpower have been spent in the US trying to deal with this SEC and create substance and a way out of the agency’s spooky remarks,” said Sheila Warren, CEO of the Crypto Council for Innovation . trade group, said in an email. “Meanwhile, most other major economies are engaged in productive consultations with experts on how to land the regulatory jet.”
The treatment of many cryptos as securities means the SEC is testing its authority, leaving those caught in its sights with a choice: capitulate and pay a settlement with the regulator, or challenge it in court. Coinbase CEO Brian Armstrong has made it clear that the company will fight the complaint, tweeting that the lawsuit will prove “that the SEC has simply not shown fair, reasonable or even serious purpose when it comes to its involvement in digital assets. .”
Six of the eight crypto touting celebrities — including Lohan and YouTube prankster turned boxer Jake Paul — decided to simply give the SEC a check after the regulator accused them of touting coins traded on the Tron blockchain without revealing that they were paid for it. So.
DeAndre Cortez Way – aka rapper Soulja Boy – and singer Austin Mahone haven’t settled yet. The celebrities are silent on the whole matter. (For what it’s worth, all Soulja Boy was hawks this week on Twitter there was a pink hoodie with a cartoon image of his smiling face. That’s almost certainly not security.)
Of course, some of the alleged crimes went beyond just trading in unregistered securities. The case against Justin Sun and three of his companies connected to the Tron blockchain also includes allegations of fraud and market manipulation that artificially inflated token trading volume by encouraging employees to make more than 600,000 so-called laundry transactions. Sun wrote on Twitter that he believes the SEC’s complaint is baseless.
Do Kwon’s indictment in the US, which came shortly after his arrest in Montenegro on Thursday, also revealed that the government believes the collapse of its Terra blockchain project was more than just a $60 billion accident. Prosecutors say Kwon also engaged in market manipulation and misled investors about certain aspects of the project. His US attorney did not respond to a request for comment from Bloomberg.
By the end of the week, it was all starting to look like a drama that could be called “Law & Order: Web3”. So what will the next episode entail? Many industry watchers are bracing for more shoes dropping.
“Overall, I expect we’ll see more of this type of enforcement news in the future as we operate in an environment with little or no regulatory guidance,” said Campbell Harvey, a professor of finance at Duke University.
For the crypto optimists looking for a silver lining, it’s all about looking to the future rather than dwelling on the ugliness of the past week. According to Aaron Brown, a crypto investor writing for Bloomberg Opinion, “the latest drama in the market tells us nothing”
“Useful attention should be paid to the new ships preparing for departure, the ones that will lead the next boom,” he said. Much of the past week’s developments have been just “the wreckage and jetsam that wash up long after the storm has passed.”
Or maybe Soulja Boy put it best in his MySpace days when he rapped, “On the internet, got ’em jumpin’ off the wall.”
— With help from Emily Nicolle
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