The US faces cryptocurrencies: the compliance of the authorities … when it suits them

After the upgrade of Ethereum, the US authorities believe that they control it. Another episode of ambiguous relations between the crypto-ecosystem and local authorities.

During his appointment as head of the Securities and Exchange Commission (SEC), American financial regulator Gary Gensler is presented as a professional in the field of cryptocurrencies. Indeed, his resume speaks for itself. Most notably, he taught Blockchain and Digital Assets at the Massachusetts Institute of Technology, and the course is now open source. However, Gensler quickly showed his ambivalence towards them. If he supports the technology, he wants to regulate it quite tightly.

For several years, the United States has been torn between a laissez-faire sandbox approach and a desire to regulate as much as possible. Officially, for the protection of the individual. Unofficially, to reinforce ultra-American dominance in the Web3 ecosystem. As such, major projects have come under the wrath of the SEC (Ripple, Tether), and the US Federal Reserve (Fed) appears to be in no hurry to create its own central bank digital currency (MNBC), unlike the European Central Bank (ECB). ).

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Ultradominance marked by the stranglehold of the dollar

The ecosystem of cryptocurrencies and Web3 as a whole has only reinforced American dominance in the technology field. In cryptocurrencies, we even talk about ultradominance. Most of the top 10 marketplaces are American (Coinbase, FTX, Kraken, Binance.US), many projects are launched in the USA or by Americans (partially Ethereum, Cardano, Solana, Celsius, Uniswap…) and dollar stablecoins suppress competition.

The place of dollar stablecoins such as USDT, USDC or BUSD does not seem to be a problem for the US authorities, rather the opposite. Thus, the Fed Governor considered that the dollar MNBC issued by the Federal Reserve would be redundant in relation to dollar stablecoins. After all, the project currently exists only in the spirit, and on the European side it is more advanced. Without talking openly about it, the Fed is in no hurry to embark on this major project.

Finally, the presence of many Web3 projects in the United States allows the authorities to regulate them ex officio.

Ultra-dominance, facilitating the control of authorities

In April 2021, Coinbase became the first public player in the cryptocurrency market. Apart from the symbolic aspect, this is also a victory for the American regulator. By entering Wall Street, Coinbase automatically becomes a platform that is fully subject to the SEC.

Other major US platforms, if they do not plan to go public in the medium term, also present their powers to the authorities without giving them carte blanche.

In general, the SEC, the Office of the Comptroller of the Currency (OCC), the banking regulator, and the Commodity Futures Trading Commission (CFTC), the regulator of the derivatives market, consider themselves competent to regulate. It also caused controversy between the SEC and the CFTC, who wanted to be the regulator of stablecoins issued in the United States.

The regulation and regulation of the latter is important, because we are really talking about stablecoins issued in the USA, and not just about dollar stablecoins. Thus, a stablecoin such as EUROC, which mimics the euro but issued by Circle, is regulated by US and non-European authorities.

This desire for regulation is not without controversy. And the conflicts between the US authorities and the crypto sector are numerous.

Lots of hidden conflicts

Ripple and Tether cases

If you ask crypto players across the Atlantic, most of them will tell you that the authorities are against them. And they will certainly bring three cases: Ripple, Tether and Tornado Cash, to which we could add Ethereum today.

While the Ripple case began years ago, it began in 2020 when the SEC arrested a competent judge after finding that Ripple’s XRP issuance was unauthorized due to a lack of registration. Thus, the SEC believes that XRP are financial securities and should be registered with them. The case is still pending, but there are rumors of a possible Ripple victory due to lack of evidence from the SEC.

Another case this time opposes CFTC Tether. As a reminder, in the world of centralized stablecoins, the issued stablecoin must be equivalent to $1 in cash (bank account, treasury bills, etc.).

For a long time, Tether has been accused of deliberately hiding its cash reserves. And that was the case, since Tether only owned 34% of the issued stablecoins! Thus, for every 100 USDT issued, Tether had only $34 in reserve. The case was settled with a hefty $42 million fine. And Tether’s troubles didn’t end there, as despite its willingness to be independently reviewed on a monthly basis, the authorities still had no evidence of reservations.

Finally, the most recent case is Tornado Cash, this crypto mixer that we have dedicated an article to and that has caused confusion in the crypto industry.

The crypto industry is under constant threat

Today, the cryptocurrency sector in the United States knows that it is being watched very closely. Recently, the American authorities are going even further, wanting to get their hands on Ethereum.

While the protocol is officially decentralized, the fact that most of the network’s nodes are “located” on US soil leads the SEC to claim that it has the authority to regulate the entire protocol. A bold interpretation, especially when we know that the situation is more complex, because it can be a simple hosting on an AWS server or Google Drive, and not necessarily located in the US … but with the obligatory transfer of data to US territory.

In addition, the SEC has long wanted to equate all cryptocurrencies other than bitcoin as financial securities, which would allow the entire sector to be regulated. And Bitcoin has not been spared as there is talk of a possible ban on mining when it is now largely done in the US.

As such, US authorities are open to topics that reinforce US dominance, such as dollar stablecoins. But they are much more closed to the rest and really have only one desire: to regulate the entire sector in the medium term.

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