Cryptocurrency scandals continue to make headlines, raising concerns about the lack of regulations in the industry. Despite the need for legislative action, Washington policymakers have shown little interest in codifying the structure of the cryptocurrency market. This lack of oversight has allowed scandals to mount and crypto exchanges to face severe legal trouble.

The Fall of Binance and FTX

The most recent blow to the cryptocurrency industry is the multibillion dollar settlement between Binance and U.S. authorities, along with the resignation of its CEO. Binance is not alone in its troubles, as FTX founder Sam Bankman-Fried has been convicted of stealing billions from customers. Smaller crypto companies have also collapsed, resulting in significant financial losses for investors.

Congress’s Reluctance to Act

Last year, when cryptocurrencies collapsed and several companies failed, Congress considered various approaches to regulate the industry. Unfortunately, most of these efforts have stalled, largely due to the chaotic nature of the past year, including geopolitical tensions, inflation concerns, and the upcoming 2024 election. The appetite for new rules has diminished, leaving the industry vulnerable to abuse.

Existing Regulations and Calls for Action

U.S. Treasury Secretary Janet Yellen has emphasized that existing regulations already apply to cryptocurrencies. She stated that the enforcement actions against Binance demonstrate the government’s commitment to prevent illegal transactions facilitated by crypto entities. However, over 100 Democratic lawmakers have urged the Biden Administration to address the use of crypto in financing terrorism.

Binance’s Settlement and Legal Consequences

Changpeng Zhao, the CEO of Binance, recently pleaded guilty to felonies related to money laundering on the platform. As part of the settlement agreement, Binance will face five years of monitoring and must comply with significant undertakings to ensure its complete exit from the United States. U.S. Attorney General Merrick Garland described this settlement as one of the largest corporate penalties in the nation’s history.

Federal Regulators Take Action

In the absence of congressional action, federal regulators like the Securities and Exchange Commission (SEC) have stepped in to enforce regulations in the crypto industry. Lawsuits have been filed against major cryptocurrency exchanges, including Coinbase, Binance, and Kraken. The SEC has charged Kraken with operating its crypto trading platform as an unregistered securities exchange. Additionally, PayPal has received a subpoena from the SEC related to its PayPal USD stablecoin.

Opposition and Calls for Regulation

Some members of Congress have opposed the SEC’s actions, arguing that congressional approval is necessary to target bad actors or suggesting that crypto should be regulated as a commodity under the jurisdiction of the Commodity Futures Trading Commission. Sens. Debbie Stabenow (D-Mich.) and John Boozman (R-Ark.) proposed handing over regulatory authority over cryptocurrencies to the CFTC. However, despite these proposals, Congress has yet to take decisive action.

The Reluctance of Powerful Opponents

The reluctance to regulate crypto stems from lawmakers’ inability to reach a consensus on its nature and the opposition from influential members of Congress who are skeptical of cryptocurrencies. Sen. Sherrod Brown (D-Ohio), chair of the Senate Banking Committee, has expressed significant doubt about cryptocurrencies and has not advanced any legislation to regulate the industry.

Lack of Support for Regulatory Guardrails

Although a bill that aimed to put regulatory guardrails around stablecoins passed the House Financial Services Committee, it has received no interest from the White House or the Senate. Consumer advocates are skeptical of the need for new rules and question the usefulness of cryptocurrencies altogether. However, critics argue that without regulatory intervention, the lawlessness and criminal activities in the crypto industry will persist.

A Turning Point for Crypto Development

While the recent fraud trials, settlements, and criminal charges have signaled trouble for the crypto industry, some analysts view them as a necessary step towards its development. The increasing mainstream adoption of digital currencies and the entry of institutional players will likely lead to stricter regulations and enforcement to ensure compliance and protect consumers. This development marks a turning point that parallels the evolution from the dot-com era to the post-dot-com era.

In conclusion, the lack of legislation surrounding the cryptocurrency industry has allowed scandals to thrive and crypto exchanges to face legal consequences. While federal regulators have taken action, it is essential for Congress to step up and create a regulatory framework to protect investors and promote the responsible growth of the crypto market. Only with proper oversight can the industry flourish while ensuring consumer protection and reducing the risk of illicit activities.