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The Coming Regulatory Storm

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I remember when news of the SEC action against Ripple hit the internet – the gleeful sputtering of people like Anthony Pompliano and Vitalik Buterin were tweeted and retweeted as the price of XRP unraveled before our eyes.

Charles Hoskinson published a YouTube video shortly after, chastising the rest of the Cryptocurrency community, suggesting that the SEC’s actions might foretell a coming storm and that the figureheads of some prominent unnamed cryptocurrencies were making light of what was an existential threat to the market as a whole.

At the apex of the recent bull market, when Bitcoin breached $63,000 per coin, and the fervor of a decentralized gold rush spilled over into tokens like Doge and SafeMoon, the mighty immutable blockchain was made humble by a crackdown on mining by Chinese authorities and the prolific criticism of environmentalist champions like Elon Musk. Price peaks evaporated as new investors were wrung through one of crypto’s uglier traditions – the dreaded pullback. And oh, what a pullback it was. Each time the price runs away from us, a regulatory action yanks us back — what a peculiar coincidence.

As Ripple churned through the American judicial system, the SEC published a statement that should have run in daily featured headlines on mainstream crypto publications, but there was barely a whisper. The SEC declared that they had not substantively given ETH or BTC a pass on future securities actions.

Back to Judge Netburn’s courtroom. Ripple requested the internal documentation to explain how and why the SEC arrived at their pronouncements as well as silence on these various coins. The SEC responded that nothing said by Clayton, Hinman or any SEC official about bitcoin or ether was an “official determination” on whether they are securities.


The SEC’s abrupt pivot is even more alarming when we consider the recent statements published by Commissioner Hester Peirce and Elad Roisman, where they seem to indicate that it is still possible the SEC could determine that all digital assets are by their nature, securities:

If the Commission were to determine that every digital asset offering is a securities offering—let’s be clear: we have not made such a determination—let us state it clearly in a rule or in an official piece of guidance and work through the implications of that conclusion for trading platforms and market participants engaged in digital asset transactions.

Whether we decide that all or a subset of token offerings are securities offerings, providing clear regulatory guideposts and then bringing enforcement actions against people who ignore them is a better approach than the clue-by-enforcement approach that we have embraced to date and that today’s settlement embodies.

These are the kinds of statements that would send medieval peasants running for the bell towers as though they had seen Viking longships sailing upriver. The sense of calm in the industry and within the cryptocurrency community is unsettling. People on social media have been focusing on Hester Peirce’s comments about the need for regulatory clarity without considering that the clarity they eventually give us might be the kind we do not want. In the interest of preserving price gains, mainstream personalities on YouTube and in the Crypto media ignore news like this while they whisper reassuring platitudes to their viewers as though they were trying to calm a flock of sheep as the distant sound of thunder bellowed overhead.

If Ripple’s fair notice defense fails, and the commission later determines that all digital assets fit the category of a security, it will give the SEC the ability to not only kill emerging blockchain projects with securities enforcement actions, but to also go after incumbents that have been operating openly in the space for decades.

The XRP community is intimately familiar with the impact of regulatory action on price and confidence. And the Bitcoin community cannot still cling to the delusion of a ledger beyond the reach of the power of nations after seeing the price tumble when miners were given the boot from China. If they think Western powers will be kinder, they should glance over to Telegram’s crypto foray, which was felled by SEC regulatory encumbrance. Other younger blockchains have also perished when regulators came for their pound of flesh. Cryptic and selectively applied securities laws, like those found in the United States, are oddly well suited to attacking decentralized ledgers when traditional powers decide it’s necessary.

Some will remember statements from European Central Bank President Christine Lagarde on the need for global Bitcoin regulation back in January. These statements resurfaced again in a recent Yahoo! News article:

“Alongside the U.S., U.K., Canada, South Korea, Japan, and China, the EU’s members are now working on how to impose regulation on the crypto market. The market has gained enough traction and pull from prominent investors that authorities have no choice but to begin addressing oversight issues. The European Central Bank’s Christine Lagarde has called for global regulation of bitcoin.”

Regulatory action against Binance currently spans multiple jurisdictions. The prominent crypto exchange was run out of Ontario by requirements to register with the Ontario Securities Commission. Back in June, the UK’s Financial Conduct Authority ruled that Binance couldn’t perform regulated activities within the United Kingdom. Italian regulators recently made a similar proclamation, declaring that Binance wasn’t allowed to facilitate cryptocurrency investments in Italy at all.

Binance has faced a number of regulatory issues in recent weeks. Payments player Clear Junction has suspended activity with Binance after similar moves from Barclays and Santander.


The attacks against Binance are reminiscent of an attack against distributed ledgers that David Schwartz called a Greater Economic Impact Attack in a YouTube video back in 2020.

These crackdowns on one of the world’s biggest crypto marketplaces seem like a dry run by regulators to lasso the crypto market through regulatory actions against exchanges. As outlined in the Unchained Podcast, Binance and its derivatives are peculiar cross-jurisdictional entities that operate transnationally — similar to many blockchains. Enforcement against entities or technologies that function like this is difficult absent cooperation across regulatory jurisdictions. Wrangling an exchange that exists almost without fixed jurisdiction is a big shot across the bow to the cryptocurrency industry as a whole.

If nation-states control the fiat on-ramps, they control their citizen’s ability to functionally participate in decentralized ledgers as not everyone is willing to bring bags of cash to facilitate backroom cryptocurrency sales. Controlling the exchanges would also give them tremendous leverage over a blockchain by their ability to impact price and consumer confidence. If nations colluded, they could force consumers to use a fork of a blockchain with censorship built-in by making it the only legal variant of a cryptocurrency that exchanges were permitted to list. In essence, we would only be allowed to decentralized in ways that they allow. 

Stable coins like Tether still cast a long shadow over the cryptocurrency market:

In May, Tether broke down the reserves for its stablecoin. The firm revealed that only a fraction of its holdings — 2.9%, to be exact — were in cash, while the vast majority was in commercial paper, a form of unsecured, short-term debt.

That would place Tether in the top 10 biggest holders of commercial paper in the world, according to JPMorgan. Tether has been compared to traditional money-market funds — but without any regulation.

With more than $60 billion worth of tokens in circulation, Tether has more deposits than that of many U.S. banks.

There have long been concerns about whether tether is being used to manipulate bitcoin prices, with one study claiming the token was used to prop up bitcoin during key price declines in its monster 2017 rally.


If Tether unravels, it could further justify more expansive cryptocurrency crackdowns as regulators run commentary framed by the histrionic tears of burned investors, some of whom irresponsibly run up debt to “invest” in Cryptocurrencies with names like Safemoon — which is the crypto equivalent of the plain white van prowling a neighborhood in an attempt to blend in. Some want to treat these regulatory actions as isolated events targeting projects that they dislike, but they fundamentally represent a push towards a more expansive and restrictive global regulatory framework. That should be alarming to holders of all cryptocurrencies, as regulators have been everything but fair in applying their interpretation of the law.

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