Staying Power

After a coordinated onslaught of regulatory action against the crypto industry during the first half of the year, the tune among U.S. regulators and government officials seems to have changed. In this week’s blog we explore possible reasons why, and what it could mean for the industry.

Too late and too hard

U.S. regulators have been on a crusade against the crypto industry during late 2022 and 2023. Here are just a few examples:

On December 15th, 2022, the SEC doubled down on its decision to reject Grayscale’s application for a spot bitcoin ETF.

On March 9th regulators seized Signature Bank and Silvergate bank. Both of which were instrumental to the crypto industry.

The desire to de-bank the crypto industry was most evident when regulators forced prospective buyers of Signature Bank to give up all of its crypto businesses. This happened to be one of the biggest and most profitable lines of business in the bank. In other words, it forcefully de-banked a large percentage of the industry by closing the banks that served the industry.

On March 13th the SEC announced that it would be growing its crypto enforcement division - even before any crypto-specific rules were published:

This was another attempt to “regulate by fear”, rather than by dialogue with the industry.

On June 5th and 6th, the SEC and 10 U.S. State Regulators launched a coordinated attack against Coinbase and Binance:

Said differently, after failing to protect Americans from actual frauds in the industry, American regulators decided to double down on the firms that were most suited to comply and shape a regulatory framework. It is going after the best managed, best capitalized, and best suited-to-comply firms, after most of the weak and bad players have been already washed out.

Their actions came too little too late, and they weren’t targeted to the firms that created the problem in the first place (most are already bankrupt).

You get what you ask for

Nobody wants to live where they don’t feel welcome. U.S. and Canadian regulators created an unclear and unpredictable regulatory environment for many players in the crypto industry. The global community and the industry reacted as you would expect.

The move by North American regulators was clearly perceived as a strategic error by the rest of the world. Within days, regulators in Europe, the Middle East, Europe, the Caribbean, and Latin America announced plans to attract crypto companies with straight-forward regulatory frameworks. We covered this in our “One country’s trash is someone else’s treasure”.??

Similarly, within weeks, some of the top crypto companies in the space announced their international expansion plans - away from North America.

On April 20th, Coinbase announced its expansion to Bermuda, and touted further international expansion plans:

On May 2nd Coinbase announced the launch of its “International Exchange” that would offer perpetual futures on Bitcoin and Ethereum to its clients from its Bermuda-based entity.

Also on May 2nd, Gemini announced its own international exchange offering, based out of Singapore.

On May 9th, Ledn announced its regulatory approval from the Cayman Islands Monetary Authority:

That’s just to name a few - dozens if not hundreds of other companies did the same or are in the process of doing so.

In a matter of days, thousands of planned jobs, and hundreds of millions of dollars of potential investment capital got redirected from North America to welcoming international jurisdictions.

The Pivot

The response from international regulators and industry participants was loud and clear. And it appears that U.S. regulators and politicians had a change of heart on the week of June 5th.?

June 8th: SEC Chairman saying that Coinbase and Robinhood “know how to register”

June 14th: The SEC’s request to freeze Binance U.S. assets was denied

June 15th: Blackrock Spot Bitcoin Trust (ETF) application filing:

For context, Blackrock has a track record of 575 approvals and one rejection on its applications.?

June 15th: Industry and public backlash on SEC over only “regulated” exchange comments during congress hearings:

June 21st - Jerome Powell publicly admitting that they recognize payment stablecoins as a form of money, and that cryptocurrencies like Bitcoin have “staying power”

June 23rd - The U.S. Court of Appeals ordered the SEC to respond to Coinbase’s request for rule making within 120 days:

June 24th - Coinbase’s arbitration case victory against the SEC:

The largest asset manager in the world filing for a spot Bitcoin Trust, and the U.S. Federal Reserve admitting that bitcoin has “staying power” are monumental events.?

Just four weeks ago the SEC took legal action against Coinbase, the very same company that Blackrock has listed as its custodian and spot market data provider on the Spot Bitcoin Trust application 10 days later.?

Just like the regulatory onslaught leading up to June 5th felt coordinated, the wave of recent positive events has a similar feel.

What caused the change of heart? I think it was a combination of how quickly other countries “opened their arms” to the industry, how the industry fought back and responded by quickly expanding elsewhere, and ultimately, the public opinion backlash of going “too hard, and too late” against the industry.?

Bitcoin has staying power, and it can no longer be ignored by Central Banks. Hodl.?