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Unsurprisingly, 2023 was quite an eventful year for the crypto sector, especially on the legal front, as countries around the world made considerable progress in building up their regulatory frameworks or introducing new laws covering digital assets to complete their existing standards. While in some cases this meant imposing more restrictions on crypto use and trade or even banning crypto entirely, in certain countries the global push for clearer regulations on digital assets laid the groundwork for creating crypto-friendly environments.
Looking at the year in review, one can’t help but notice that the U.S. has been particularly busy in this respect. According to Binance, here the fate of Bitcoin and the altcoins is determined by several state agencies, with the U.S. Securities and Exchange Commission leading the way. While crypto regulations have been high on the agenda of all governments, the U.S. has set itself apart through the enforcement actions it took in 2023 which seem to set the tone for the rest of the world.
From a financial Wild West to iron fist policies
In its early days, the crypto market was often compared to a financial Wild West and for good reason: there were no rules, guidelines or laws governing this newly-emerged asset class and everyone could act as they wanted, with no consequences to fear. Absent of any standards, the crypto space presented itself as a land full of promises, opportunities and dangers, where daredevils could become rich or lose it all. The volatility and uncertainty that loomed large in the market made investing in digital currencies an extremely appealing but also highly risky endeavor.
This didn’t seem to be such a major issue in the beginning, when the industry was still in its infancy and many were skeptical of crypto’s chances of success, predicting it would slowly fade into obscurity. However, that didn’t happen and as the years went by, it became clear that digital currencies were not only here to stay but they also appeared to gain more ground by the day.
Inevitably, crypto’s increasing popularity and ongoing expansion put the asset class on regulators’ radar. With more traders, investors and individuals dabbling in crypto, it was no longer possible to ignore the impact that digital assets were having on traditional finance and people’s lives. This called for immediate action from lawmakers and ushered in a new era for cryptocurrencies.
The introduction of clear regulatory guidance was regarded as a necessity in stabilizing the crypto market, reducing the risk of fraud and manipulation and providing protection for investors, and came as a natural step in the evolution of the sector. Nowhere is this evolution more visible than in the U.S. where the SEC and several other organizations have been working tirelessly to mitigate the risks associated with crypto.
The SEC is taking no prisoners
Although establishing crypto regulations became a non-negotiable, putting things into practice proved more difficult than expected. Digital currencies represent an uncharted and highly intricate territory for policymakers, with rapid and inhomogeneous growth, making it extremely challenging for them to develop viable frameworks that can be applied to all actors and activities in the crypto space.
Given the obstacles, the U.S. found it suitable to task several government bodies with overseeing the activity in the crypto ecosystem. With a comprehensive crypto regulation still in the works and leaving too many gaps for one single agency to be able to cover all possible scenarios and situations, the SEC, the Commodity Futures Trading Commission, the Department of Justice, and Treasury’s Financial Crimes Enforcement Network (FinCen) joined forces and created some sort of crypto regulation front.
In the wake of the latest crypto winter which saw Sam Bankman-Fried’s FTX crypto empire crumble to dust and the collapse of several other crypto firms and projects, these agencies decided it was time to ramp up their efforts and weed out the bad actors that could cause so much havoc in the industry. The SEC alone took over 25 enforcement actions against crypto executives, charging them with serious offences from fraud to market manipulation.
No one escaped the regulator’s scrutiny, not even large players like Coinbase, Kraken and Ripple who were brought to court for engaging in fraudulent activities. What’s more, the SEC also supplemented its crypto enforcement unit by 40% in 2023, proving that they’re determined to put an end to the misconduct that has been running rampant in the cryptocurrency market for so long and increase safety and transparency in dealing with crypto assets.
Some believe that the SEC went a bit too far with its regulation-by-enforcement approach and that this aggressive attitude could hamper innovation and impede the development of the crypto industry. Given the intense regulatory crackdown, many crypto companies have expressed their intentions to leave the U.S. and set up bases in jurisdictions with more relaxed crypto regulations. Having a large number of crypto firms moving their headquarters and talent overseas would be a major hit to the cryptocurrency community in the U.S., so regulators need to tread carefully so as not to disrupt the local market.
However, the U.S. is not the only country to impose strict crypto regulations. Across the pond, the European Union implemented the Markets in Crypto-Assets Regulation (MiCA) which is largely regarded as the most comprehensive and solid crypto regulatory framework so far. Slowly but surely, crypto standards will start taking shape in all parts of the world, leaving no room for legal gaps that malicious actors could exploit.
Wrapping up
The fact that 2023 has seen notable progress in crypto regulations proves that interest in digital currencies is increasing worldwide. This also suggests that crypto’s journey into the financial realm is far from being over, as some were quick to predict during the last crypto winter, but it is only just beginning. As the U.S. seems to be leading the charge in developing crypto standards, it’s safe to predict that other countries will follow in its footsteps in the near future.