Retail crypto investors find hope in regulation

The cryptocurrency market has gotten off to a better start in 2023 than many expected after FTX.

This, like a wave of recent industry actions and regulatory probes, is urging the sector into what observers hope could be a new era of maturity and clarity around protecting private investors, at least from scams and fraud, if not from perpetually overhyped assets and tokens.

In its annual report to shareholders filed on Monday (February 27), retail investor-focused trading app Robinhood revealed that the Securities and Exchange Commission (SEC) is investigating the platform’s crypto operations.

“In December 2022, following the bankruptcies of several major cryptocurrency trading venues and lending platforms … we received an investigative subpoena from the SEC regarding, among other things, RHCs [Robinhood Crypto] cryptocurrency listings, custody of cryptocurrencies and platform operations,” the company’s Form 10-K said.

“We will work with the SEC and continue to advocate for what we believe is right for our customers,” Robinhood CEO Vlad Tenev told investors on the company’s latest earnings call.

Robinhood Crypto is licensed to operate and provide retail investors with digital asset trading products across more than half of the United States, with either a money transmitter license or a currency transmitter license in 28 states and the District of Columbia.

The commission-free trading platform lost around 800,000 monthly active users during the last fiscal quarter, as the collapse of the crypto marketplace combined with a challenging equity macro climate dampens overall appetite for retail investors.

US-based crypto exchange Coinbase is dropping the Binance-branded BUSD stablecoin from its platform, claiming that the world’s third-largest stablecoin by market capitalization does not meet Coinbase’s own internal standards for digital asset listings.

While Coinbase may have seen a strategic advantage in delisting a virtual asset linked to one of its market competitors – Coinbase is issuing its own USDC stablecoin product to facilitate crypto market trading in partnership with Web3 company Circle – the decision likely also came from recent regulatory actions taken against BUSD stablecoin and its partners by the SEC and the New York Department of Financial Services (NYDFS).

See also: NYDFS is upgrading its crypto fraud detection arsenal

The SEC and NYDFS also have separate days to crack down on Binance’s US business line’s acquisition of bankrupt former crypto rival Voyager.

Following in New York’s crypto footsteps

Crypto represents one of the most revolutionary and yet overhyped inventions of the 21st century. For years, the forward-thinking digital asset ecosystem in the US thrived thanks to friendly approaches at the state level and little intervention from federal lawmakers.

Now the tide is turning towards seemingly inevitable industry regulation and new consumer protections in the wake of widespread industry disasters over the past year, each successive domino falling revealing the pitfalls of what can happen to trusting consumers in an unregulated industry rife with mismanagement and alleged fraud, where everyone believe – or did at the time – that they will be able to get rich quick.

In the absence of comprehensive US federal regulations for the digital assets industry, some states are moving to fill the vacuum themselves.

Illinois lawmakers are reportedly advocating a new crypto regulatory system based on New York’s own BitLicense.

A coordinated pair of bills have been introduced to potentially establish a crypto license for the government, as well as crucial consumer protections requiring disclosure and safeguarding of customer assets, including private investor-focused and anti-fraud guardrails.

Still, state-level regulatory equivalents of New York’s BitLicense are not without their critics.

“[C]Hanging on to the BitLicense is irrational,” Alex Adelman, CEO of bitcoin rewards app Lolli, wrote in an earlier Op-Ed for crypto media website CoinDesk. “The license is a relic, representing NYDFS’s failed hope that it would serve as a model for others states with its ‘regulation by strangulation’ approach.”

“By pouring pesticides on the industry, the BitLicense also zaps new shoots, arbitrarily stopping life in the sector so that only giants like Square and Coinbase, which both have BitLicenses, can survive,” he added.

California saw its own BitLicense-inspired legislative effort vetoed by Governor Gavin Newsom on September 23.

Citing the uncertain regulatory landscape, as well as the lack of clarity over consumer protections, both Visa and Mastercard have reportedly decided to push back the launch of their own crypto-related products and services.

“Recent high-profile failures in the crypto sector are an important reminder that we have a long way to go before crypto becomes part of mainstream payments and financial services,” a spokesperson for Visa, the world’s largest payment processor, told Reuters. article published Tuesday (February 28) with the news.

For all PYMNTS crypto coverage, subscribe to the daily Crypto newsletter.