The U.S. Finally Started to Crack Down on Crypto in 2023

Yves here. Honestly, it’s a disgrace that this long overdue move to end crypto lawlessness has started to gain some traction. And it wasn’t clear instances of societal harm, like ransomware attacks on government bodies, utilities, and hospitals that got officials out of bed. No, it was all the bad press connected to the extreme, large-scale and shockingly lazy fraud committed by Sam Bankman-Fried, the recoil factor amplified by the fact that he’d gotten fawning media treatment before.

By Felicity Bradstock, a freelance writer specialising in Energy and Finance. Originally published by OilPrice

  • The U.S. government cracked down on crypto companies with legal action in 2023, highlighting the need for comprehensive regulations in the industry.
  • Environmental and energy concerns are yet to be addressed, with crypto mining consuming vast amounts of energy, posing a threat to global efforts for a green transition.
  • There is a variation in global regulatory approaches, with some countries like China and the EU implementing strict measures, while the U.S. struggles to establish a clear framework.

Crypto companies worldwide have carried out mining and trading activities relatively unchecked in recent years, as governments have dragged their feet in establishing adequate regulations to manage the sector. Meanwhile, many companies have been using vast amounts of energy to power the activities required to mine crypto, as demand for the digital currency has steadily increased. The U.S. is now taking legal steps to punish companies that have abused their position of economic power. However, the lack of regulation shows the need to develop a clear political and legal framework to manage the sector, in such a way as has been seen in Canada, Europe and other parts of the world.

The U.S. had a busy year last year when it comes to crypto crimes, having carried out severe legal action against several major firms over the last year. In 2023, the crypto miner Binance was ordered to pay over $4 billion to U.S. authorities following a guilty plea for money laundering from the company’s CEO, Changpeng Zhao. Meanwhile, FTX founder Sam Bankman-Fried was found guilty in November of stealing from customers, leading to the bankruptcy of the company. This shows the need to enforce strict regulations on the sector, to ensure these crimes cannot take place in plain sight.

Note that in the US, the rules are clear that taxpayers are to report and pay taxes on crypto profits. The IRS has only done limited enforcement so far. Tightening up within existing rules could force some improvement in behavior. I am waiting for more whistleblowing to the IRS by jilted spoused and unhappy ex-employees…

But it’s not just crypto-related crime that the U.S. and other governments are trying to tackle. While cryptocurrency has played a major role in the global economy in recent years, providing key funds in some instances – such as to Ukraine throughout the ongoing war with Russia – it also presents a threat to energy and environmental security. Mining cryptocurrency requires vast amounts of energy, with the production of Bitcoin alone using around 127 terawatt-hours a year, more than the energy usage of some countries, such as Norway. Crypto mining in the U.S. is estimated to produce between  25 to 50 million tonnes of CO2 a year. This threatens environmental security and undermines government efforts to achieve a green transition, meaning that countries must work quickly to ensure that adequate regulations are in place to curb energy usage in the crypto industry and decarbonise the sector.

Renato Mariotti, a former prosecutor in the U.S. Justice Department’s Securities and Commodities Fraud Section explained of the U.S. situation, “Other countries have a comprehensive regulatory framework in place. We don’t… As a result, issues that should be determined by legislation or regulation are instead litigated.” He emphasised that the use of legal action in the U.S. reflects a ‘regulation by enforcement’ approach. To date, the White House has not introduced comprehensive regulations on digital currencies, although certain states have introduced state-level legislation on crypto. And the industry does not expect new legislation to be enacted any time soon.

Alyse Killeen, the managing partner of Stillmark Capital, stated “Clearer regulatory frameworks and stance from regulators globally have provided a sense of legitimacy and security, encouraging more widespread participation in the bitcoin market,” urging the U.S. government to provide clear guidelines for the sector.

In contrast, several countries around the globe have introduced national-level cryptocurrency regulations. China has some of the strictest limitations on digital currencies, having banned the mining of Bitcoin in 2021 and forbidding crypto exchanges from operating in the country. However, China has been developing its own digital currency – the digital yuan (e-CNY) – since 2022. Canada has also been proactive in its approach to crypto regulation, classifying all crypto investment firms as money service businesses and requiring them to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). It was also the first country to approve a Bitcoin exchange-traded fund (ETF), with several trading on the Toronto Stock Exchange. Meanwhile, the United Kingdom has not introduced any cryptocurrency-specific laws to date and cryptocurrency is currently considered as property, rather than legal tender.

In April last year, the EU approved the world’s first comprehensive framework for crypto regulation, introducing the Markets in Crypto Act, or MiCA. The Act imposes several requirements on crypto platforms, token issuers and traders around transparency, disclosure, authorisation, and supervision of transactions. Customers are informed on crypto platforms about risks associated with digital currencies under the new rules. Further, the European Securities and Markets Authority can intervene if it deems a crypto platform is not properly protecting investors or threatens market integrity or financial stability. MiCA also responds to environmental concerns by requiring crypto companies to disclose their energy consumption and the impact of their digital assets on the environment.

Countries have been managing the rapidly emerging cryptocurrency sector in a range of ways, from allowing them to operate unchecked to introducing national regulations or carrying out legal action on any criminal activity in the sector. However, it has become clear that the regulatory path works in a preventative way, ensuring that best practices are followed in the industry and that crypto companies can be monitored to better manage both economic and environmental security.

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  1. Acacia

    Crack down? Errr, no mention of the SEC approving 11 crypto spot ETFs?

    Well, technically that just happened this month, so not in 2023 per the scope of this article.

    Or is it that everything is hunky dory as long as the crypto ETFs are managed by the likes of BlackRock, Ark, Fidelity, et alia?

    I have only a superficial understanding of this, and hopefully somebody who actually groks it will weigh in.

    AFAICT, though, the energy consumption problem is something that will plague proof-of-work cryptos like BTC, but the claim now is that that can be pretty much mitigated with the transition to proof-of-stake. Ethereum PoW supposedly take 2000x the energy as Ethereum PoS. So, this issue begin could go away, and Ethereum may be next up for a spot ETF approval.

    It really feels like the big boys believe cryptos are here to stay. They seem keen on acting as middlemen for passive investment, getting a whole bunch of new investors. Saw a tweet that said something like: “Grandpa with 500K in his 401k isn’t going to self custody. If you want Grandpa’s money to flow into cryptos, you have to make it possible though an ETF.”

    Larry Fink, CEO of BlackRock was a naysayer for years, but then flipped and is now a believer, saying cryptos should be viewed as an asset class and store of wealth, but not a currency (at least not BTC). AFAICT, the main thing that seems to excite him is the tokenization of various assets. He’s been talking this up for a while now, and at moments it sounds fairly creepy. What, exactly, this offers over existing asset classes is unclear to me, though.

    Supposedly, tokens simplify the management of transactions, ownership, etc., and help to avoid problems of money laundering, but tbh I’m not really sure how that last bit works. Maybe it’s just about no money laundering for the “wrong” people. Fink also said the failure of FTX was largely due to them creating their own token, though if that is so, then who is to issue tokens in his vision of the future?

    BlackRock, I assume.

    1. Mikel

      “Crack down? Errr, no mention of the SEC approving 11 crypto spot ETFs?”

      This. I just see everybody in on the promotion and pump. “C’mon in. It’s “regulated.”

      “Grandpa with 500K in his 401k isn’t going to self custody. If you want Grandpa’s money to flow into cryptos, you have to make it possible though an ETF.”

      Or, how can we sell high and toss some bags to Grandpa? That’s where the cash is.”

  2. The Rev Kev

    I’m probably wrong here but when I look at the timing, I cannot help but think that perhaps that in part this is the Biden White House trying to shake down the crypto industry for some political donations in this election year.

  3. Michael Fiorillo

    Biden’s DoJ intentionally refused to pursue investigations of Bankman Fried’s political contributions (with stolen money!), openly to the D’s and stealthily to the R’s, which is a story in itself. Corporate media has also been happy to comply, by ignoring the story, which is/should be a big one. Then there’s the approval of the crypto ETFs.

    If there’s a much needed crackdown happening, I don’t see it.

  4. Bob

    “While cryptocurrency has played a major role in the global economy in recent years, providing key funds in some instances – such as to Ukraine throughout the ongoing war with Russia.”

    It is symptomatic of a financialized economy and financialized mindset that cryptocurrency is perceived as anything other than a vehicle for financial speculation. Useless and valueless. Massive amounts of energy and computer power are used to solve puzzles, cleverly called mining to create the impression productive work is being performed. It seems obvious to me that in a world where energy restrictions are rapidly accelerating that the wise use of this limited resource is necessary. That we choose to squander limited energy resources and computer power on financial speculation instead of improving our material world goes a long way to explaining the malaise on Main Street.

  5. FredW

    Many buy bitcoin for these reasons:

    They perceive it as a hedge against the inflation of their local as well as other “fiat” currencies.

    They wish to have a store of wealth that is difficult for others to take from them. (Although the new bitcoin ETFs, not “crypto” ETFs, by the way, will undoubtedly make bitcoin more popular and accessible, they do not offer the “self custody” feature of having one’s own wallet, which is important to most present holders of bitcoin. These latter see newcomers buying into ETFs as a step in their education, hopefully not a costly one.)

    They wish and economical means for payment that do not depend upon the good graces of the banks, credit cards, and other expensive, slow, and potentially fickle institutions.

    They feel that the money it takes to support the above structures likely uses more resources than that of bitcoin while they enthusiastically support finding ways to cut down the cost of using bitcoin such as making use of surplus energy that cannot be efficiently used otherwise, e.g., El Salvador tapping thermal energy from a volcano to power nearby bitcoin mining, which energy would otherwise be unavailable to far away users.

    A side note: bitcoin can also be used by all kinds of criminals, but so can hundred dollar bills, printing presses, churches, automobiles, and governments.

    1. ChrisPacific

      They feel that the money it takes to support the above structures likely uses more resources than that of bitcoin

      In absolute terms yes. On a per unit basis, no – by several orders of magnitude.

      while they enthusiastically support finding ways to cut down the cost of using bitcoin

      It’s expensive by design. If it wasn’t, it couldn’t operate (see: proof of work).

      Proof of stake is a chimera – if it was a workable alternative, we’d have it by now. Work is self-proving, stake requires a guarantor, which would mean losing the only thing that makes Bitcoin unique.

  6. Susan the other

    Finance has really jumped the shark with crypto. Why do I think Larry Summers invented it? Crypto has nothing in common with digital sovereign money except that it is electronic. The distinction begins immediately after a crypto token is born. It is not currency. And how can crypto be called an asset when it costs more than it could ever be worth just to mine the stupid things. And etc. Like reaching up and grabbing a handful of air, assigning it a unique number, and claiming it is worth $45,000. And nobody cares. Dear Jesus.

  7. Leo Grellede

    Very well. The march for centralization is going on. But the reason of “green” and “safe” is all but a pretext for allowing the crypto market to the States and Financial Institutions. FTX is the best pretext for, because you cannot move a buck from the bank without a bowing confession of the movement and SBF moved billions… Please go ahead but don’t expect to be credibile by a normal brain.

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