Here's why recent moves by the SEC and CFTC may be just the start of crypto's regulatory troubles

Here's why recent moves by the SEC and CFTC may be just the start of crypto's regulatory troubles
After a tumultuous so-called crypto winter, industry experts are weighing in on the market's next roadblock.ViewApart/Getty Images


  • Both the SEC and the CFTC have taken action against the crypto industry in the last few weeks.
  • Insider asked compliance experts about the implications of a widening crackdown on the space.

In the past month, top financial regulators in the US have announced a slew of moves against major crypto companies and those working with them, action sources say may point to a wider regulatory crackdown that's brewing in the space.


Following regulatory actions including the Securities and Exchange Commission's charges against crypto founder and entrepreneur Justin Sun, and the Commodities Futures Trading Commission's suit against Binance and founder Changpeng Zhao, market observers say the moves could be a preview of what's to come.

Martin Grant, global head of regulatory affairs at financial services firm JST Digital, says the recent enforcement actions show that these agencies are "pushing hard to tilt the current regime to provide more investor protection."

"But the question is will the resolution of these cases provide a workable path for others to follow or will the rules that emerge cripple an emerging industry," Grant told Insider.

He added: "At the end of the day industry participants are searching for regulatory clarity, which has not yet been achieved."


Regulators are seemingly more determined after billions of investor dollars were lost following the implosion of major players like Sam Bam Bankman-Fried's FTX and Do Kwon's algorithmic stablecoin TerraUSD in the past year. Both disgraced crypto moguls have since been criminally charged by US authorities.

High-profile cases like these made it clear that "new regulation was inevitable," Braden Perry, a former CFTC senior trial attorney, said.

"With the rise of cryptocurrency, the crypto investment community has significantly grown, and both sophisticated and novice investors have joined the fray," Perry, an expert in regulatory compliance and white collar defense, told Insider. "[And] regarding crypto exchanges and wallets, there is a transformed investment environment that is ripe for novel products and services — but also abuse."

He added: "The ever-increasing amount of exchanges/wallets, and issues/hacks has undoubtedly served as a shot across the bow to the regulators and likely will be the impetus for future rulemaking."

As a result of more regulatory scrutiny, Youwei Yang, chief economist at mining company BTCM, says smaller less-resourced projects may be pushed out of the space because they can't afford to stay compliant.


"Compliance and regulatory efforts are expensive, but necessary, the personnel will be almost as important as tech people," Yang told Insider. "Large crypto players who are more registered will eventually take over the smaller players who are not compliant or not having enough capital to be compliant with registration and daily monitoring all that costs."

Markets could face more volatility following a crackdown because crypto prices are often sensitive to regulatory news. The pace in which regulators will make these decisions remains unclear as they typically "lag in rulemaking and policy in unexplored areas of innovation," Perry said.

"Still, such a public move with relatively notorious companies will undoubtedly affect the market, as seen in the price fluctuations recently, and FTX's collapse," he added.

Perry says that a well-designed regulatory frame that aims to deter bad actors and "not overregulate the technology that has allowed greater market access," would likely be a positive. This, however, would require a widespread effort and coordination between financial regulators, industry participants, and legislators.

"In terms of next steps, if cryptocurrency firms want to avoid further scrutiny, they will need to prioritize shoring up their compliance controls, and adopt and incorporate automated protocols and technologies to better understand their customers and identify potential risks," Rory Doyle, Financial Crime Policy Manager at regtech solutions provider Fenergo, told Insider.


The SEC this month unveiled charges of fraud and securities violations against crypto founder and entrepreneur Justin Sun, and settled with a handful of celebrities like Lindsay Lohan, Ne-Yo, and Jake Paul for illegally promoting Sun's tokens.

The SEC also issued a Wells notice to Coinbase. The formal letter states the agency's plans to bring a possible enforcement action against the largest US crypto exchange over violations of securities law.

Meanwhile, the CFTC last week slapped Binance and founder Changpeng Zhao with a lawsuit, alleging that the world's largest crypto exchange by volume consistently broke US derivatives trading rules.

"The defendants' own emails and chats reflect that Binance's compliance efforts have been a sham and Binance deliberately chose – over and over – to place profits over following the law," Gretchen Lowe, chief counsel in the CFTC's enforcement division, said in a statement.