They wrote the jokes themselves.
The US Department of Justice on Wednesday announced ominously, will be holding a live press conference at noon to announce an “International Cryptocurrency Enforcement Action.”
Crypto Twitter panicked and so did crypto prices. Bitcoin and Ethereum plunged almost 5% in just a few minutes in what turned out to be a flash crash. Which major player is in the DOJ’s crosshairs? Binance was a popular bet and CZ didn’t help matters in a tweet only “4” which he announced On January 2, his new alert is incoming “FUD, fake news, attacks, etc.”
Then the press conference was held. It wasn’t Binance. It’s not Celsius, Voyager, Blockfi, or any other bankrupt crypto-lender that defrauded its customers. It was a Hong Kong-based, Russian-owned crypto exchange called Bitzlato.
Bits – what? Bitzlatte? I’ve been writing about crypto since 2011 and never heard of it.
Bitzlato, the DOJ said, processed more than $700 million in illegal funds, including millions in proceeds from ransomware.
Okay. But as of January 18, Bitzlato customers had… $11,000 in their wallets. according to Coinbase’s COO. At Bitzlato’s peak, $6 million was held in customers’ wallets, a change.
And yet, DOJ Deputy Attorney General Lisa Monaco heralded the enforcement action as a “significant blow to the cryptocurrency ecosystem.” He said Bitzlato “froze the high-tech core of crypto-crime”.
The crypto market recovered quickly.
I could put in more top memes about this, but let’s get down to the “Why” and “What does it mean?”
DOJ is trying to be flexible.
People in crypto laughed at it, but people outside of crypto probably didn’t. The US government wants to make it clear, especially after the massively detailed collapse of FTX, that it is aware; CRYPTO CRIME (!) and takes decisive action.
The DOJ has reportedly been investigating Binance since 2018, and according to Reuters: split on whether to press charges. The DOJ is also rumored to be investigating Digital Currency Group, the owner of crypto-lender Genesis, which filed for bankruptcy this week.
And the DOJ is not alone. The SEC last week charged both Genesis and Gemini with violating securities laws.
SEC Commissioner Hester Pierce, in an interview with our gm podcast last month, was reluctant to say outright that the collapse of FTX would directly lead to more crypto regulation. But it’s clear that at least it’s already led to more posturing. And Pierce said he hopes it won’t prompt his peers to overreact with hasty restrictions.
“I think we should all be looking for regulatory frameworks that are developed in the context of enforcement because that’s a very tempting thing for regulators to do,” Pearce said. “And that just takes everyone else out of the process.”
I often say that crypto people have an irrational fear of the very word “regulation”. They assume that regulation means a complete shutdown, when regulation, in an ideal scenario for everyone, could simply mean new safeguards for retail investors.
That being said, what Sam Bankman-Fried has created is a new climate where regulators and politicians feel more pressure than ever before to show they are serious about ridding crypto of bad actors. And that can lead to overwhelm. We already saw this last year with Tornado Cash.
The next high-profile enforcement action may not be against a small-time player.
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