The US government rectified the cryptocurrency industry, and investors fled in shock

Tencent Technology News News on February 15, the US government's rectification of the cryptocurrency industry has intensified. While no action has been taken against many of the industry's largest cryptocurrency companies, they have begun restricting access to key products and services in the cryptocurrency business.

On Monday, the New York State Department of Financial Services ordered cryptocurrency company Paxos to stop issuing BUSD, the world's third-largest stablecoin. BUSD is a U.S. dollar-pegged stablecoin launched in 2019 by cryptocurrency exchanges Binance and Paxos. BUSD is issued and owned by Paxos, and Binance only licenses its brand. The move not only caused investors to flee, but also raised concerns about Binance's future.

As a partner of Binance, Paxos is facing a lawsuit from the SEC. A few days ago, the SEC fined the parent company of another cryptocurrency exchange, Kraken, and forced it to stop offering a popular crypto yield product to US investors. In addition, banking regulators are quietly pressuring banks to cut ties with cryptocurrency customers and limit their ability to participate in the real-world financial system.

This follows years of slow investigation and debate by the U.S. government on how best to respond to the rapidly expanding cryptocurrency industry. Some observers have noted a shift in tone among U.S. government officials following the collapse of cryptocurrency exchange FTX, which has bolstered calls from politicians and regulators for tighter enforcement.

Now, as executives of cryptocurrency companies prepare for more regulatory lawsuits and investigations, investors are starting to flee suspicious targets. Kristin Smith, CEO of the Blockchain Association, said: "From an industry perspective, it does feel like a carpet bombing is going on right now. ”

According to blockchain data provider Nansen, $2.7 billion flowed out of Binance in the 24-hour period from Sunday to Monday. According to Nansen, $144 million worth of BUSD was converted into dollars on Monday morning. Paxos said Monday it "strongly opposes" the SEC's requirement that BUSD comply with federal securities laws. Separately, according to CoinMarketCap, Binance's token, BNB, which is often seen as a barometer of investors' views on Binance, fell 8% on Monday.

The breadth of similar actions suggests that the SEC and other regulators want to control pillars of the cryptocurrency market, such as stablecoins (digital coins fixed at $1) and Staking (staking, a common way for investors to earn interest on cryptocurrencies).

Fears of an industry hit seem to have lost momentum to the cryptocurrency market rally that began at the beginning of the year. By 5 p.m. ET on Monday, bitcoin was trading at around $21,621, down 9% from the previous high set on Feb. 1.

At the same time, banking regulators have expressed concerns about whether lenders can safely tap into the sector. Some banks have reduced their participation in cryptocurrency trading. Binance announced last week that it would suspend dollar bank transfers. The exchange announced that one of the company's banking partners, New York-based commercial bank Signature Bank, no longer supports any cryptocurrency exchange customers buying or selling less than $100,000, as is the case for all cryptocurrency exchanges.

Since the Trump administration began taking office, the SEC has been the primary regulator of the cryptocurrency market when regulators have expressed interest in the new technologies underpinning cryptocurrencies. Many of the SEC's early enforcement actions targeted smaller businesses, giving the market the impression that dealing with the industry's most recognizable brands was less risky.

But in November, FTX, one of the world's best-known trading platforms, collapsed after a report revealed that its affiliated hedge fund, Alameda Research, invested heavily in an illiquid digital asset issued by FTX. The disclosure triggered a run on customer deposits, forcing the company and its affiliates into bankruptcy.

Coy Garrison, a partner at Steptoe & Johnson LLP who advises clients on cryptocurrency legal issues, believes the FTX's failure has encouraged the SEC. "There is a political incentive for people to file bigger cases after FTX in order to be seen as responsible regulators," he explained.

The Securities and Exchange Commission filed a lawsuit last month against crypto lender Genesis Global Capital LLC and its partner, Gemini Trust Company LLC, alleging that their procedures for allowing users to earn interest on their crypto tokens violated securities laws. Gemini, which operates one of the largest cryptocurrency exchanges in the United States, has said it intends to go to court with the Securities and Exchange Commission.

The case suggests that the SEC may order other companies to stop providing access to Staking, a practice in which investors lock up their digital assets, such as Ether or Solana, in exchange for interest-like earnings. Borrowers can use loaned assets to facilitate transactions on the asset-based blockchain network.

Securities and Exchange Committee Chairman Gary Jensler told the media last week that cryptocurrency pledging may fall within the purview of the regulator, "which should get everyone's attention in the market." "Jensler is not interested in negotiating a tailored regulatory regime for cryptocurrencies. Instead, industry officials claim that the SEC wants to impose rules on the industry as a whole on Wall Street.

Binance America, a subsidiary of Binance America, which also provides Staking services, said it was monitoring the situation. Meanwhile, Coinbase CEO Brian Armstrong threatened to sue the SEC if it criticized the company for providing Staking services. "If necessary, we will be happy to defend ourselves in court," he said on Sunday.

Since FTX's bankruptcy, Jensler has been warning that time is running out for cryptocurrency companies, including exchanges, to voluntarily comply with investor protection regulations. Jensler dismissed the cryptocurrency industry's claim that their market is too unique to coexist with SEC rules.

During the Trump administration, banking regulators were more open to banks serving cryptocurrency companies, and this seems to have cooled down since then. In early January, three banking regulators issued statements expressing doubts about the safe holding of digital assets by financial institutions. Within a week, Metropolitan Commercial Bank, a small New York bank that had dabbled in cryptocurrency, announced the closure of its cryptocurrency business.

Meanwhile, after receiving preliminary approval from the Office of the Comptroller of the Currency in early 2021, two companies seeking banking licenses have been pending. Paxos National Trust and Protego Trust Co. submitted applications to establish a bank that would hold crypto assets and facilitate trading. Protego's conditional license recently expired.

According to people familiar with the matter, the company believes that the regulator's increasingly anti-cryptocurrency stance has played a role in its lack of full approval. Paxos said it was still in talks with regulators. "No one has asked Paxos to withdraw his application from the Office of the Comptroller of the Currency for the Charter of the National Trust Bank, nor has it rejected the charter," Paxos said in a statement on Twitter. (Mowgli)