The White House does not mess with cryptocurrency companies. Not only has the Biden administration put forward a framework for new rules to curb the wild west of the emerging market, but it is also actively encouraging regulators to “aggressively prosecute” those who break the law.
“Digital assets offer potential opportunities to bolster U.S. leadership in the global financial system and stay at the technological frontier,” the White House said in a statement on Friday.
“But they also pose real risks, as evidenced by recent events in the crypto markets. The crash of a so-called stablecoin in May and the ensuing spate of bankruptcies wiped out over $600 billion in investor and consumer funds.”
Not surprisingly, bitcoin and ether fell behind in the news, suggesting that the crypto crash is far from over. Bitcoin fell below $19,000 on Monday, a far cry from its all-time high of $69,000 in November. The decline was also fueled by expectations that the Federal Reserve will announce a third rate hike this week.
The White House lays out plans for new cryptocurrency rules
The White House announced its new cryptocurrency roadmap on Friday, explaining the goals the new rules aim to achieve.
The new rules aim to achieve six distinct goals: strengthening consumer and investor protection, promoting financial stability, fighting illicit financing, strengthening US leadership in the global financial system and economic competitiveness, strengthening financial inclusion and ensuring responsible innovation.
The White House said the new cryptocurrency rules would protect consumers and investors by preventing sellers from misleading buyers about the risks of trading digital assets and failing to comply with existing regulations.
“Apparent scams, scams and theft in digital asset markets are on the rise: According to FBI statistics, reported monetary losses from digital asset fraud in 2021 were nearly 600% higher than the year before,” the White House said.
Against this backdrop, the government called on the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to “aggressively conduct investigations and enforcement actions against illegal practices in the digital assets space.”
The two authorities were reportedly locked in a power struggle over which regulator should oversee cryptocurrencies. Although when Verdict confronted the CFTC with the reports of an emerging turf war, which the market watchdog dismissed as an annoying “media trope”.
The White House issued similar executive orders for the Consumer Financial Protection Bureau and the Federal Trade Commission.
Apart from that, the White House has also encouraged authorities to issue guidance and rules to address current and emerging risks in the digital asset ecosystem.
The crypto crash continues
Cryptocurrencies and other digital assets like non-fungible tokens known as NFTs have struggled this year. The collapse of the sector is closely linked to the general market volatility seen around the world as a result of the pandemic and the Russian invasion of Ukraine.
The slowdown in the market along with the looming threat of tougher police forces have helped the cryptocurrency winter shed roughly $2 trillion in industry value since November. It’s now worth about $1 trillion.
The crash has also dealt a blow to the profits of established companies. Cryptocurrency exchange Coinbase’s revenue is down 63%, and South Korean rival Upbit has reported a 61.3% drop in revenue since last year.
The crash has also led to the very public collapses of stablecoin TerraUSD, which collapsed after a large amount of the digital asset was dumped, resulting in its being unpegged.
After the crash, South Korean police raided offices linked to the company after investors raised allegations of fraud against the company. South Korea last week issued an arrest warrant for Do Kwon, the founder and CEO of Terraform Labs.
Similarly, crypto lender Celsius filed for bankruptcy in July. The company is currently going through a restructuring and has been accused by regulators of looking like a Ponzi scheme.
Investments remain strong
Despite these setbacks for the industry, some, like Exchange Bitstamp’s new CEO Jean-Baptiste Graftieaux, seemed reasonably optimistic about the future of the industry.
However, there may be a reason for this upward movement. While cryptocurrencies have lost value, venture capitalists (VC) don’t appear to have lost confidence in the industry, according to new data from research firm GlobalData.
In 2020, the industry enjoyed $3.3 billion in VC endorsements across 533 deals. Those numbers grew to $26.4 billion in 2021 with 1,013 deals.
As of Tuesday, September 20, GlobalData estimates that the industry raised $15.7 billion across 972 VC deals in 2022.
GlobalData is the parent company of Verdict and its sister publications.