“Crypto is dead in America”.
That’s according to billionaire tech investor Chamath Palihapitiya, speaking on a recent episode of the All-In podcast.
Palihapitiya blamed the sorry state of crypto in the USA on the recent actions of regulators.
“Now you have (US Securities and Exchange Commission Chair Gary) Gensler even blaming the banking crisis (last month) on crypto… so the United States authorities have firmly pointed their guns at crypto.”
Three US banks, all with close links to cryptocurrency, collapsed or were shuttered by US regulators last month, sparking concerns of a full-blown crisis in the US banking sector.
According to Palihapitiya, one reason authorities are going after crypto is because the rapidly growing industry poses a threat to the establishment.
Crypto companies “were probably the ones that were the most threatening to the establishment”, he noted, before adding that crypto companies were also “the ones that, in fairness to the regulators, did push the boundaries more than any other sector of the startup economy”.
The US SEC has amped up its efforts to regulate the crypto sector via enforcement this year.
Last month, the agency issued a Wells Notice to Coinbase, signaling it will soon pursue legal action against the exchange over “unregistered securities offerings”, like its staking program and some of its token listings.
Coinbase recently sued the SEC asking for it to respond to a July 2022 petition for clearer crypto rules, with the company also reported to be considering a US exit if the regulatory situation doesn’t improve.
The SEC also recently forced Kraken to shutter its staking service, took out action against BUSD stablecoin issuer Paxos (alleging that BUSD is a security) and is propping a ban on investment advisors from trading in crypto.
Good Actors Paying the Price for Regulatory Failures
The billionaire tech investor stated that good actors like Coinbase are “paying the price” for what fraudulent firms like FTX did to damage the reputation of the cryptocurrency industry.
Indeed, Chamath was strongly critical of regulators for their snubbing of good players like Coinbase and cozying up to bad actors like FTX.
“Coinbase played by the rules, stood in line, tried to do the right things. It seems that every step along the way — everything from board composition, to executive composition, to how they try to interact with the regulators, yet they were probably the furthest away from getting a license,” he said.
Chamath added that “The (exchange) that came the closest (to getting a license) was the one that was the most fraudulent… FTX. How is that even possible?”.
SEC Chair Gensler recently appeared before Congress where he was grilled by mostly Republican lawmakers over his seemingly excessively anti-crypto stance as a regulator.
Lawmakers also hammered Gensler over the lack of clarity his agency has been communicating to the sector.
“Regulation by enforcement is not sufficient nor sustainable… You’re punishing digital asset firms for allegedly not adhering to the law when they don’t know it will apply to them,” remarked House Financial Services Committee Representative Patrick McHenry.
At the Congressional hearing, Gensler refused to say definitively whether Ether (ETH) is a security or not.
What’s the Solution?
Some lawmakers speaking at SEC Chair Gensler’s recent testimony before Congress expressed the opinion that the US needs a new regulatory framework for crypto in order to create certainty and prevent companies from setting up shop overseas.
The European Union just passed major crypto legislative package called the Markets in Cryptocurrency Act (MiCA) to regulate the sector as a unique new asset class, rather than based on rules laid out in the 20th century for traditional assets like stocks and bonds.
Major Asian financial centres like Hong Kong, Singapore and even Taiwan are also making strides to regulate crypto as a new asset class, with the former rolling out a new licensing regime for crypto firms.
The US needs to follow suit if it doesn’t want to lose its grip on one of this century’s most promising sectors/technological innovations.
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