Binance Official Sounds The Alarm: Stricter U.S. Regulations Can Trigger Crypto Washout

U.S. Crypto Regulation

After a year of unprecedented failures, cryptocurrency insiders held out hope that 2023 would usher in a fresh start for the industry. Instead, the industry has found itself on the receiving end of a vigorous crackdown on the part of the U.S. government. The Securities and Exchange Commission (SEC) slapped fines and other penalties on crypto lending firms late last month, while federal banking officials published public statements that looked to be geared to make it difficult for crypto companies to operate in the country.

SEC’s Crypto Crackdown

The greatest threat that regulation poses to cryptocurrencies is not the collapse of another cryptocurrency exchange or the theft of many millions of dollars. At the very least, that is what Patrick Hillmann, the chief strategy officer at the largest crypto exchange in the world, Binance, said on Tuesday. Hillmann stated that U.S. cryptocurrency laws are becoming increasingly stringent and shortsighted, which might cause some serious crypto market turbulence or possibly suffocate the growing industry if it persists.

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While speaking regarding the ongoing crypto crackdown, Hillmann was quoted as saying:

The U.S. has always been a place that has really fostered great innovation. Unfortunately, I think we’re seeing now is going to come at a real cost [to investors] over time.”

As a result of the failure of the crypto exchange FTX, which was formerly the second largest in the world, regulatory authorities in the United States have increased their enforcement of existing crypto rules. The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a joint statement in the month of January warning banks about the risks of exposure to “crypto-asset related activities.” The statement was issued in conjunction with a public warning.

In the weeks that followed, the SEC levied seven-figure fines against celebrities who advocated cryptocurrencies and cracked down on features known as “staking” in which users get rewards for keeping particular coins. Earlier this month, the California-based Kraken exchange was penalized with a fine of $30 million for inappropriate disclosures linked to its staking feature.

Crypto Washout In The Making?

Hillmann is particularly concerned about the proliferation of crypto regulations that target stablecoins and exchange tokens. Stablecoins and exchange tokens are cryptocurrencies whose value is pegged to an external asset, such as the dollar or gold. Exchange tokens are used to facilitate transactions on crypto exchanges. Hillmann argued that “when you take that away from users at a time like this, that safety net disappears”.

Moreover, he also noted that they’re seeing a pressure campaign on U.S. financial institutions to stop servicing crypto. Therefore, according to Hilmann, crypto investors are unable to readily withdraw their money from the exchanges, in addition to not being able to shift their money to a safe location.

Hillmann’s remarks follow the New York Department of Financial Services’ order for the blockchain platform Paxos to cease minting Binance’s stablecoin (BUSD), citing unaddressed issues relating to Paxos’ management of its partnership with Binance. At the time of writing, BUSD’s price remained pegged to its one-dollar value, while significantly losing out on market share to rivals like USDC and USDT.

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