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Why Is the US Government Determined to Undermine Crypto?

4 mins
Updated by Michael Washburn
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In Brief

  • The US government's approach to crypto regulation raises wide concern about the stifling of innovation.
  • Collaboration between regulators and the industry is key to striking a balance.
  • A forward-looking approach can position the US at the forefront of the crypto revolution.
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Recent actions by the US government have raised concerns among investors about the growing crypto attack underway in America.

These actions appear to be part of a broader effort to regulate and control the cryptocurrency market, potentially stifling innovation and limiting access for many users.

Stricter Regulations and Enforcement Actions

The US Securities and Exchange Commission (SEC) has been stepping up its enforcement efforts against crypto projects. Particularly those that have conducted Initial Coin Offerings (ICOs).

According to Bloomberg Law, the SEC’s litigation against crypto projects has ventured into uncharted territory. The regulator is pursuing high-profile cases against well-established companies such as Ripple Labs.

In addition to the SEC, other government agencies, including the Department of Justice (DOJ) and the Financial Crimes Enforcement Network (FinCEN), are increasingly scrutinizing the crypto industry.

A report from Chainalysis highlights the impact of US regulations on the institutional adoption of cryptocurrencies. It notes that regulatory uncertainty and fears of non-compliance have deterred many financial institutions from embracing digital assets.

“If you don’t necessarily know who the counterparty is, that is a big issue for federal regulators. If you’re unable to verify identity, that is a large issue for prudential regulators, and that goes along with things like customer protection and cybersecurity. So those are some of the things that they’re really concerned about in this particular [digital asset] space,” said Sam ten Cate, Managing Director of State Street Digital.

Some experts argue that the US government’s crypto attack has unintended consequences on the broader financial system.

Ellen Brown, an attorney and author, suggests that the war on crypto has triggered a banking crisis. US banks are scrambling to adapt to the changing regulatory landscape and struggling to maintain their traditional business models.

US Banks Market Capitalization
US Banks Market Capitalization. Source: Statista

The uncertainty surrounding the future of cryptocurrencies in the US has also led to a chilling effect on investment. Many institutional investors are hesitant to enter the space due to concerns about potential regulatory backlash. They fear the possibility of being targeted by enforcement actions.

The Role of CBDCs

As the US government seeks to exert more control over the crypto industry, it is also exploring the development of a Central Bank Digital Currency (CBDC).

The Federal Reserve is currently conducting research on the feasibility of introducing a digital version of the US dollar. The initiative could potentially reshape the financial landscape and challenge the dominance of cryptocurrencies.

Proponents of a CBDC argue that a digital dollar could offer numerous benefits. These include increased efficiency in the payment system, reduced reliance on physical cash, and improved financial inclusion.

Additionally, a CBDC could enable the government to track better and combat illegal activities. These include money laundering and terrorist financing, often associated with crypto.

Popular Dark Web Payment Methods: Crypto
Popular Dark Web Payment Methods. Source: Statista

However, some experts warn that a CBDC could also have significant drawbacks. For instance, a digital dollar might enable greater surveillance of financial transactions by the government. This could raise privacy concerns for many individuals.

Introducing a CBDC could significantly impact the future of cryptocurrencies in the US.

Alex Thorn, Galaxy Digital Head of Firmware Research, notes that the government’s crypto attack may be driven by a desire to protect the status of the US dollar as the world’s reserve currency. If a digital dollar were to gain widespread adoption, it could potentially displace cryptos as the preferred digital payment method, further undermining their value and utility.

“I think it’s very troubling for American capital markets. You look at the rest of the world going in a complete opposite direction, not just trying to stamp it out. But the UK, Hong Kong, Dubai, and Europe are actually enacting and working on progressive regulations that businesses can work with. Meanwhile, in the US, we have a sort of broad-based attack on the industry,” said Thorn.

The Path Forward for Crypto Regulation in America

Despite the challenges facing the crypto industry in the US, there are also reasons for optimism. As regulatory clarity emerges, it could pave the way for more institutional investors to enter the space. Consequently, driving innovation and increasing the adoption of digital assets.

The US government must balance its crypto attack with regulation and innovation to ensure the continued growth and success of the industry. Overly restrictive policies could stifle progress and deter investment. Meanwhile, insufficient regulation could leave consumers and investors vulnerable to fraud and abuse.

A balanced approach would involve clear and consistent rules that protect the public interest without hindering technological advancement. This could be achieved by working closely with industry stakeholders and adopting best practices from other jurisdictions with more established regulatory frameworks for cryptocurrencies.

By embracing a collaborative approach, the US government and the crypto industry can work together to develop innovative solutions that address regulatory concerns while promoting economic growth.

Crypto Market Cap
Crypto Market Cap. Source: Statista

For instance, enhancing the use of blockchain technology for tracking and reporting financial transactions could help combat illicit activities while preserving the benefits of decentralized digital assets.

Moreover, fostering public-private partnerships and encouraging dialogue between regulators and industry participants can help create a more conducive environment for developing new products and services. This would benefit the crypto industry and contribute to the overall competitiveness of the American economy in the global digital landscape.

Embracing the Future of Finance

Cryptocurrencies and blockchain technology have the potential to revolutionize the global financial system, making transactions faster, more secure, and more accessible to people around the world.

While the government’s efforts to regulate and control the crypto market may be well-intentioned, they also risk stifling innovation and limiting access for many users. A balanced approach that fosters collaboration, innovation, and regulatory clarity is essential to ensure the continued growth and success of the crypto industry in the US.

By embracing this approach, the country can continue to lead the way in developing and adopting digital assets, shaping the future of finance for the better.

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Bary Rahma
Bary Rahma is a senior journalist at BeInCrypto, where she covers a broad spectrum of topics including crypto exchange-traded funds (ETFs), artificial intelligence (AI), tokenization of real-world assets (RWA), and the altcoin market. Prior to this, she was a content writer for Binance, producing in-depth research reports on cryptocurrency trends, market analysis, decentralized finance (DeFi), digital asset regulations, blockchain, initial coin offerings (ICOs), and tokenomics. Bary also...