“Crypto is dead in America,” says tech investor Chamath Palihapitiya

Tech investor Chamath Palihapitiya, who said two years ago that bitcoin has replaced gold and predicted the digital currency would climb to $200,000, has a much more cautious view of cryptocurrencies these days.

“Crypto is dead in America,” Palihapitiya said on the latest episode of the All-In podcast.

Palihapitiya largely blamed crypto’s demise on regulators, who have become much more aggressive in hunting down bad actors in the industry. Securities and Exchange Commission Chairman Gary Gensler has said that crypto trading platforms should comply with strict US securities laws.

Answering questions before lawmakers recently, Gensler linked the collapse of Silicon Valley Bank to the crypto industry.

“You got Gensler to blame the banking crisis on crypto,” Palihapitiya said. “The US government has firmly turned its guns on crypto.”

The SEC has stepped up enforcement of the crypto industry, affecting companies and projects that the regulator claims were selling unregistered securities.

In February, the agency proposed rules that would change which crypto firms could divulge customer assets, and in March, the SEC issued crypto exchange Coinbase a Wells Notice, warning the company that it had identified potential violations of US securities law. (A Wells notice is usually one of the last steps before the financial regulator issues charges.) Last week, the SEC charged crypto-asset trading platform Bittrex and its former CEO with operating an unregistered exchange.

Coinbase CEO Brian Armstrong told CNBC that his company is preparing for a year-long legal battle with the commission, and is also considering moving outside the US if it doesn’t get improved regulatory clarity. Meanwhile, Bittrex has already announced that it will wind down US operations specifically due to “continued regulatory uncertainty.”

They “were probably the ones that were the most threatening to the establishment,” Palihapitiya said, referring to crypto companies. “And they were the ones who, in fairness to the regulators, pushed the boundaries more than any other sector of the startup economy.”

“Now they’re paying the price for it,” he said. “The bill has arrived for them.”

Gensler faced similar criticism from House Republicans over the agency’s crackdown on cryptocurrency platforms during four hours of congressional testimony last week.

“Regulation by enforcement is not sufficient or sustainable,” said House Financial Services Committee Chairman Rep. Patrick McHenry, RN.C. “You’re punishing digital asset firms for allegedly not following the law when they don’t know it will apply to them.”

McHenry said the SEC’s approach was to “drive innovation abroad and jeopardize American competitiveness.”

Gensler defended the agency’s actions.

“We have a clear regulatory framework built up over 90 years,” he said, adding that exchanges “are generally non-compliant and they need to come into compliance.”

Bitcoin, the largest cryptocurrency, hit a record high of around $69,000 in November 2021, when the Federal Reserve’s benchmark interest rate was close to zero and investors were taking risks. The market changed in a hurry last year, when the Fed started raising interest rates steadily to fight inflation.

In early 2021, Palihapitiya on CNBC predicted that bitcoin would rise from $39,000 at the time to $100,000 and then up to $200,000.

“In what period I do not know,” he said. “Five years, 10 years, but it’s getting there. And the reason is because every time you see all of this happening, it just reminds you that, wow, our leaders are not as reliable and trustworthy as they used to be.”

Later in 2021, just before the peak, he said bitcoin “had effectively replaced gold.”

Bitcoin is currently trading at just over $27,300, down 60% from its all-time high.