Regulating Crypto: Crackdowns on the Horizon

The US Department of Justice recently announced the formation of a special team created to prosecute cryptocurrency crimes. Here's what this means for founders!

Crypto crunch

The news: Last week, the US Department of Justice announced the new National Cryptocurrency Enforcement Team (NCET), created to investigate and prosecute crypto crimes, focusing on currency exchange platforms. The Department cites preventing abuse on the platforms as a top priority:

We are launching the NCET to draw on the Department’s cyber and money laundering expertise to strengthen our capacity to dismantle the financial entities that enable criminal actors to flourish, and quite frankly to profit, from abusing cryptocurrency platforms.

The team will consist of federal Criminal Division experts and attorneys from across the country.

The background: As with other tech innovations, the crypto space is advancing quickly while the law struggles to keep up. As the field has evolved, there has been very little regulation, leaving crypto platforms and exchanges vulnerable to criminal activity. Throughout the year, the Biden Administration has introduced initiatives to crack down on the nefarious players in the space, and the creation of the NCET is the latest in these efforts. Crypto exchanges have been used for money laundering, for the illegal sales of drugs and weapons, and, most notably, for ransomware attacks.

What it means: The formation of a dedicated team, and allocation of Department resources, indicates that we'll likely see major changes when it comes to crypto dealings. Just last month, the US Treasury Department issued sanctions against crypto exchange Suex, citing that 40& of transactions on the platform came from illegal activity. This is the first time that the White House has sanctioned a crypto exchange, but it won't be the last. The Department vowed to take "robust actions" to disrupt currency exchanges in an attempt to fight ransomware:

As cyber criminals use increasingly sophisticated methods and technology, we are committed to using the full range of measures, to include sanctions and regulatory tools, to disrupt, deter, and prevent ransomware attacks.

Ransomware payments reached $400M in 2020, up 4x the amount in 2019. Crypto exchanges play a large part in this activity, since there is much potential to manipulate the market.

Legal tender: Crypto does not currently have legal tender status in the US. In September, El Salvador became the first country in the world to adopt Bitcoin as legal tender, with analysts predicting that other countries could soon follow.

Implication nation

Sanction, sanctions: In cracking down on exchange platforms, the sanctions issued can reverberate to other players in the crypto ecosystem. Here's what was ordered against the sanctioned individuals in last month's crackdowns:

  1. All property subject to US jurisdiction were blocked.
  2. Any entities 50% or more owned by one, or more, designated persons were blocked.
  3. Any banks or individuals who engaged in further transactions with the sanctioned entities and individuals also exposed themselves to sanctions or other enforcement actions.

Indie hacker interests: Indie hackers who have invested in crypto should be aware of increasing regulations in the space. We have already seen the start of crackdowns when it comes to crypto tax reporting, with the Internal Revenue Service (IRS) issuing notices for individuals and businesses on the tax status of crypto transactions.

Outside of exchange platforms, the US government has announced its intent to increasingly focus on entities that accept or facilitate crypto transactions. For founders who own businesses falling into this category, or individuals who buy, sell, and trade crypto, keeping abreast of advancing regulations and requirements is a must, to avoid potential compliance issues.

Taking it mainstream: Some say that they're excited to see increased regulations for crypto, arguing that federal regulations will make investors feel more secure about throwing their money into the ring. Although some are concerned about regulations decreasing trading value, other individual investors argue that adding regulations will stabilize the market over the long-term by taking some of the current risk out of the equation. Making crypto safer could be a giant step towards taking it mainstream, as it may entice more people to invest. Opponents argue that the market will remain speculative with or without regulation.

What do you think of a crypto crackdown? Share below!

  1. 4

    Maybe. But it's all just FUD. Network effect means bitcoin will only grow. Crypto as a tool for innovation is not going away. NFTs have enabled digital artists to finally be rewarded for their work sparking a renaissance in creativity. Long term there is so much bullish for crypto - any blip caused by regulation will be temporary and actually probably be seen as a huge green light

  2. 2

    Thanks for posting this.
    I am personally very bullish, however, I believe US crypto regulation is inevitable and it's actually good for the market in the long run. More regulation means more acceptance of the innovation and lower volatility. That being said, I think all of this will move much slower than the market movement in the short term.

  3. 2

    I welcome additional regulation, precisely because of the reasons mentioned. I don't think the regulations will be effective but it builds trust.
    The title of the article is too much click bait IMO.

  4. 1

    Was just on a meeting today with an in-house lawyer for a large BTC ATM company and during it he casually mentioned that increased regulation keeps his job fun and interesting. Doesn't seem concerned by increased regulation at all which I found both interesting and comforting

  5. 1

    Will be interesting to see how this plays out….

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