Coinbase, Do Kwon, Lindsay Lohan Are All Caught in Widening Crypto Dragnet
(Bloomberg) — Last year’s crypto market meltdown triggered a series of bankruptcies that almost completely reshaped the digital asset industry. This year, it seems the government’s watchdogs are arriving on the scene to finish the job.
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The past week saw the industry hit by another deluge of enforcement news, from the SEC’s threat to take legal action against Coinbase Inc. and the lawsuit against the Tron blockchain network to the arrest of crypto fugitive Do Kwon. Even celebrity crypto promoters like actress Lindsay Lohan and rapper Soulja Boy were caught up in the attack.
As the headlines piled up, the development put a lid on a rally in Bitcoin that had pushed the oldest token back up towards the closely watched $30,000 level. A Friday morning glitch at crypto exchange Binance took spot trading offline for more than two hours on a platform whose market dominance has only grown as other players have pounced, adding to the sour mood. Bitcoin hovered around $27,500 on Saturday.
The collision course between the US government and crypto-believers’ vision of a system where money can be freely exchanged around the world without government “censorship” was accelerated by the failure of Terra blockchain’s stablecoin to maintain its $1 peg and the bankruptcy of FTX last year, which combined to evaporate nearly $2 trillion of digital wealth. This month’s implosion of crypto-friendly banks Silvergate Capital Corp. and Signature Bank has added fuel.
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At the center of much of the recent action is the SEC’s decision to treat many cryptoassets as securities that must be registered with the agency and subject to all the regulations that come with it. Needless to say, digital asset enthusiasts were surprised by much of this week’s news flow, particularly regarding publicly traded Coinbase, which says it has repeatedly tried to engage with the regulator to no avail.
“A reprehensible amount of resources and brainpower has been spent in the United States trying to engage with this SEC and trying to create substance and a way out of the horrible comments issued by the agency,” Sheila Warren, executive director of the Crypto Council for Innovation trade group , said in an email. “Meanwhile, most other major economies are actively in productive consultation with experts on how to land the regulatory plane.”
The treatment of many cryptocurrencies as securities means the SEC is testing its authority, leaving those caught in its sights with an option: capitulate and pay a settlement with the regulator, or fight it in court. Coinbase CEO Brian Armstrong has made it clear that the company will fight the complaint, tweeting that the process will prove “that the SEC has simply not been fair, reasonable or even demonstrated a serious purpose in its involvement in digital assets. .”
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Six of the eight crypto-touting celebrities — including Lohan and YouTube prankster-turned-boxer Jake Paul — decided to simply cut the SEC after the regulator accused them of claiming coins traded on the Tron blockchain without disclosing they were paid to do so. so.
DeAndre Cortez Way – aka rapper Soulja Boy – and singer Austin Mahone have not settled. The celebrities are silent about the whole matter. (For what it’s worth, the only thing Soulja Boy was sporting this week on Twitter was a pink hoodie with a cartoon image of his smiling face on it. It’s almost definitely not a certainty.)
Of course, some of the crimes alleged went beyond just trading in unregistered securities. The case against Justin Sun and three of his companies linked to the Tron blockchain also involves allegations of fraud and market manipulation that artificially inflated the trading volume of tokens by encouraging employees to make more than 600,000 so-called wash trades. Sun wrote on Twitter that he believes the SEC’s complaint lacks merit.
Do Kwon’s indictment in the US, which came shortly after his arrest on Thursday in Montenegro, also revealed that the government believes the collapse of his Terra blockchain project was more than just a $60 billion accident. According to prosecutors, Kwon also participated in market manipulation and deceived investors about certain aspects of the project. His US attorney did not respond to a request for comment from Bloomberg.
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By the end of the week, it had all started to look like a drama that could be called “Law & Order: Web3”. So what will the next episode contain? Many industry watchers are preparing for more shoes to be released.
“Overall, I expect we’ll see more enforcement news like this in the future given we’re operating in an environment with little or no regulatory guidance,” said Duke University finance professor Campbell Harvey.
For the crypto-optimists looking for a silver lining, it’s about looking to the future rather than dwelling on the ugliness of the past week. The latest market drama “tells us nothing,” according to Aaron Brown, a crypto investor who writes for Bloomberg Opinion
“Useful attention should be paid to the new ships preparing for departure, those that will lead the next boom,” he said. Many of the developments in the past week were just “flotsam and jetsam washed ashore long after the storm has passed.”
Or maybe Soulja Boy said it best back in the MySpace days when he rapped, “On the internet, they made them jump off the wall.”
–With help from Emily Nicolle.
(Updating prices.)
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