No less important than interest rate: examining the latest SEC attack on crypto

After a rate hike and temporary stabilization of the banking system, U.S. regulators are back to their interrupted crusade against crypto. So let’s figure out why is this so important, and where will it lead in the end.

We are going to look at two vectors of legal attacks on crypto in the U.S. by regulators.

Attack Vector #1

As we predicted earlier, after the attack on staking from the Kraken exchange, the next possible target is Coinbase, which is doing exactly the same thing. And while Coinbase claimed that Kraken’s problems don’t concern it in any way, today the largest U.S. cryptocurrency exchange received a “Wells Notice” from the SEC, indicating that this regulator is preparing to sue for violating securities laws.

In the meantime, it should be understood that the legal attack on staking is a camouflaged attack on Ethereum itself (and all its many PoS-based clones). Unfortunately, it is starting to come true pretty quickly. The only good news is that this story is sure to be a long one; such legal proceedings could last for a year or even two. 

The hidden meaning of launching such an aggressive attack is also clear: the bank interest rate on deposits in the U.S. is now about 1%, while staking, being conservative and safe, brings in about 15%. All this causes an increasingly massive flow of funds from the banking system to crypto, which, against the background of recent bank problems  is perceived by regulators as a red flag.

Attack Vector #2

A much more interesting new case is that yesterday the SEC sued Justin Sun, the founder of TRON, who was accused of manipulating the market and selling unregistered securities. According to this formula, the next accused could be anyone at all, such as the CEO of Binance or Elon Musk. In this variant of the attack, the interpretation can be extended as broadly and flexibly as possible to any crypto influencer.

Popular crypto user Autism Capital even issued such a warning to its subscribers:

There is an absolute non-zero chance that the US Federal government comes for personal crypto asset seizure at some point for American citizens if things continue declining further.

— Autism Capital 🧩 (@AutismCapital) March 22, 2023

What will this lead to?

In the long run, this will lead to the displacement of crypto projects outside the U.S. At the same time, such an outcome will be controversial. For example, earlier, the US regulator sued the KuCoin exchange for trading Ethereum in the US, although the company itself is not a US resident and ignored the US court summons and continued its work. Technically, it is not in the U.S., but in times of the global network and cross-border nature of crypto, its physical location is not important.

The latest news already hints at such an outcome: due to the worsening cryptocurrency climate in the US, Coinbase is right now negotiating with institutional clients to open a new crypto exchange outside the US.

In conclusion, we would like to recall the rapid development of at least three crypto-friendly jurisdictions that grant licenses and access to their banking system: Hong Kong, Dubai, and Switzerland. They have created a legal paradise for crypto projects, where many well-known players are now flocking, then operating through a network around the world.