Why Are Crypto Crackdowns Accelerating in 2023?

Despite bearish periods, heists, or crypto project falls, the crypto industry invariably recovers, showcasing market resilience.

The crypto industry has always had a way of recovering after major unfortunate events. Be it a bearish period, a significant (or even small) heist, the fall of a cryptocurrency, or a widely used and well-known crypto project, investors and the whole crypto market, in general, have found their way out of every issue they encountered.

Still, sometimes it is quite hard to get back on track when unexpected and negative events are thrown at you and leave you with no time to recover, right? And this is the matter that is currently worrying many crypto enthusiasts and developers, as the crypto industry has been subject to many lawsuits, scandals, and various regulations issued by multiple financial institutions.

The US and the EU regulators seem to be working hard to ensure that no other crypto scandals will shake the industry in the future. But is this plethora of actions actually helping at the moment?

The Regulators Invoke Investor Protection, Transparency, and Risk Management

Crypto has its flaws; that is not news. And crypto investors are aware of that. Those who decided to earn cryptocurrency since the beginning have probably been part of a couple of unfortunate events.

Take FTX, for instance. One of the most popular crypto exchanges collapsed in less than 2 weeks in November 2022. FTX filed for bankruptcy in no time, and founder Sam Bankman-Fried was arrested by Bahamian authorities and later extradited to the US. The FTX collapse did affect the crypto industry, and the consequences have not unfolded completely yet. As the biggest fall in the industry, this event has made investors more cautious and left FTX users with few ways of recovering their assets.

And this is not the only worrying event that took place quite recently. Celsius, one of the most popular cryptocurrency lending companies, crashed, too. In 2022, the company posted a memo informing users that it paused all withdrawals, swaps, and transfers between accounts.

On July 13, Celsius announced that it filed for Chapter 11 bankruptcy, and once the company was down, the market followed it. The crypto industry experienced a fall once again, and this was not the first for 2022. The crash of Terra Luna also affected the industry in a worrying way.

Such events have triggered regulators, and they did not hesitate to interfere. The SEC levied fines and penalties against various crypto companies, and federal banking officials issued policy statements that are currently making it hard for crypto projects to continue to work in the same manner.

The regulators do state that their actions against the crypto industry are taken in order to protect worldwide crypto investors. And while they may achieve that to some extent, such fines, statements, and lawsuits will surely affect cryptocurrencies and their evolution. And it is already affecting the market. By taking a quick look at crypto by market cap, you can sense a little bit of cautiousness coming from worldwide crypto investors.

The MiCA Bill in the EU

While the SEC took action in the US, the EU's attitude regarding crypto did not stay the same too. Thus, in October 2022, the European Union reached a policy consensus on the Markets in Cryptoassets (MiCA) regulation. And while the rules aim to ensure that crypto transfers can always be traced and it is possible for regulators to block suspicious transactions, there are some rules that may affect the crypto market yet again.

In March 2023, MEPs from the Economic and Monetary Affairs and Civil Liberties, Justice and Home Affairs committees adopted three pieces of legislation regarding crypto: The EU "Single Rulebook" - Regulation, the 6th Anti-Money Laundering – Directive, and the regulation establishing the European Anti-Money Laundering Authority.

Basically, the rules adopted by the European Union set limits of €7,000 for cash payments and €1,000 for crypto-assets transfers. Such limits can indeed affect the crypto industry, as exchanges, trading platforms, and investors, in general, will be limited when performing crypto-related activities that they were used to conduct freely before.

And MiCA being adopted now is another action taken by regulators subsequent to the falls and crashes of various crypto projects that we mentioned before.

The US Senate Hearing on Crypto

As we already discussed, the US did not hesitate to intervene and try to regulate crypto. The SEC has conducted some enforcement actions against various crypto projects, such as Kraken and Coinbase. The US Securities and Exchange Commission has settled with Coinbase for $100 million. Kraken settled with the SEC for $30 million and has also closed all staking operations in the US.

And then there is also the arrest of Bitzlato co-founder Anatoly Legkodymov. Legkodymov was charged with $700 million for financial crimes. "Institutions that trade in cryptocurrency are not above the law, and their owners are not beyond our reach," US Attorney Breon Peace said when announcing the arrest of Legkodymov.

What Does It Mean for Crypto?

Crypto has recovered from much, but will crypto recover from this? Several central authorities are adopting various regulations regarding crypto: crypto transfers bigger than €1,000 are banned in the EU, staking is almost unavailable in the US. Such actions can affect the industry for an extended period.

At the moment, crypto is experiencing a downtrend, and this may be mostly due to the numerous recent crackdowns.

However, experts believe that the crypto industry is able to recover from all the crackdowns. "What's happening today is a coordinated effort that cuts across multiple agencies and seemingly reflects a unitary view that the entire crypto industry needs to be restrained. (…) It's important for the crypto industry to prepare itself for a long fight," says Coinbase chief legal officer Paul Grewal.

As we mentioned before, crypto has always had its way with such unfortunate events, and it is highly possible that the industry will recover once more, despite many authorities' efforts to regulate the whole market.