Crypto Under Siege

The recent assault on crypto has some fighting back, but some are running scared too.

As the crypto market expands, U.S. agencies like the SEC, DOJ, and Treasury are cracking down on the industry with a regulations blitz, setting their sights on major crypto players.

While most actions targeted major companies such as Binance, Kraken, Coinbase and Ripple, lately they have been taking one shot after another against the industry.

Focusing not only on prominent players in the space, but also Defi and privacy-focused services, in what some view as an all-out assault on crypto.

Recent aggressive moves by U.S. regulators seem determined to unmask crypto's anonymity veil.

While the crypto community reels from the privacy onslaught, battle lines are being drawn.

In response, some have dug in deeper, rallying to preserve crypto's privacy promise.

However, others have raised the white flag, shutting down operations as regulatory scrutiny makes pseudonymous efforts increasingly perilous.

As so-called watchdogs work to strip crypto of its identity-shielding virtues, will cypherpunk values reign supreme or get derobed?

Credit: CoinTelegraph, Decrypt, DL News, Wired, The Rage, Lawtoshi, Stand With Crypto

The industry has been locked in an ongoing battle with the SEC, especially Gary Gensler, who recently labeled crypto an "outsized piece of the scams and frauds and problems in our markets."

The SEC has ramped up its regulatory crackdown on major crypto firms like Ripple, Binance, Kraken, Coinbase, Uniswap, Consensys, Robinhood and others, expanding its reach into the DeFi sector.

On May 9th, the SEC made a surprise last-minute decision to delay Exodus' listing on the NYSE, despite prior approval.

The fight is being waged on multiple fronts, as US Senator Elizabeth has been going after the crypto industry since 2022.

More recently, her push for the Digital Asset Anti-Money Laundering Act may have prompted some DOJ actions.

In March, the DOJ indicted crypto exchange KuCoin and its founders for violating the Bank Secrecy Act and operating an unlicensed money-transmitting business.

In late April, the DOJ made a high-profile arrest in Spain of Roger Ver aka "Bitcoin Jesus" in late April on allegations of tax evasion and fraud from 7 years ago, shortly after he published Hijacking Bitcoin: The Hidden History of BTC, a book critical of Bitcoin's centralization.

Probably just a coincidence that he was arrested shortly after his book was released, right?

There's a clear focus on cracking down on crypto privacy tools like coin mixers, designated as money laundering hubs by the US Treasury.

The DOJ charged Tornado Cash co-founders Roman Storm and Roman Semenov with money laundering and sanctions violations back in August 2023.

At the end of April, the DOJ countered Tornado Cash developer Roman Storm’s attempt to dismiss several charges brought against him. The case is set to go to trial in September.

In a separate case, Tornado Cash dev Alexey Pertsev was sentenced to 64 months in prison in mid-May after a Dutch court found him guilty of money laundering, with prosecutors arguing his individual coding choices facilitated criminal activities.

The verdict references FATF, despite its lack of regulatory power or democratic oversight.

This precedent could hold open-source devs responsible when criminal users exploit non-custodial tools.

While legally separate from Pertsev's case, some believe his guilty verdict may foreshadow Storm's fate.

Recently, Samourai Wallet co-founders were charged by the DOJ for operating an unlicensed money transmitting business allegedly involved in $2 billion of unlawful transactions laundering over $100 million.

Their case was assigned to Judge Richard M. Berman, who previously ruled random subway bag searches constitutional.

While Samourai's case just began, Storm cites users' privacy rights in fighting charges that his U.S. company only built software solutions to provide financial privacy to legitimate cryptocurrency users.

The DOJ's pursuit of Tornado Cash and Samourai signals intent to treat crypto mixers as unlicensed money transmitters, potentially unleashing further regulatory actions industry-wide.

It didn’t take long for another shot to be fired, as Congressman Sean Casten proposed the Blockchain Integrity Act on May 6, which would place a two year ban on institutions handling mixer-routed funds.

To find summaries of the latest cases in crypto law, organized by regulatory agency, look no further than the Crypto Litigation Tracker.

The Domino Effect

The shockwaves are rattling the space, with 3 projects shutting down U.S. operations in just over a week. One service is closing entirely.

On April 26th, Paris-based Bitcoin company Acinq announced it is pulling its popular Lightning network wallet, Phoenix, from app stores in the U.S., citing regulatory uncertainty.

The next day, Wasabi Wallet developers ZKSnacks announced the preemptive closure of its mixing service, banning U.S. customers from using its services.

Trezor cold wallet announced on May 2nd Coinjoin mixing services for US customers will be shut down by 1st June 2024.

Then on May 6th, LocalMonero decided to fully wind down its platform over 6 months due to internal and external factors.

Will the exodus continue?

Does the SEC have an Uneven approach to Crypto?

While many crypto firms are licensed, only Prometheum Ember Capital has received the SEC's new broker-dealer license for custodying and trading "crypto asset securities."

The SEC approved the first crypto ETF not tied to stocks in 2021 with the ProShares Bitcoin Strategy ETF (BITO), and allowed spot Bitcoin ETFs to trade this January.

Outside of those, its stance has been mixed, filing at least one lawsuit per month against crypto companies since November, mostly ending in settlements.

There are concerns the SEC's enforcement lacks due process, prompting Republican bills to limit its authority.

Congress voted to reject SEC guidance (SAB 121), that critics say deters banks from crypto dealings, though Biden promised a veto.

The industry has been constrained by regulators for years. The SEC itself faced legal challenges as the Supreme Court's conservatives questioned expansive federal power, faulting the SEC's in-house judge selections in 2018 and making it easier to challenge agency actions in court.

Critics argue the SEC gains unfair advantage litigating "administrative proceedings" before its own judges instead of juries.

Last fiscal year it pursued 270 in-house cases versus 231 in federal court.

With 2024 being a significant election year in the United States, including the presidential race, an increasing number of politicians are beginning to express their stance on cryptocurrency.

Ultimately, it will be up to US lawmakers to pass legislation that addresses the challenges and opportunities presented by the digital asset market.

Sluggish regulatory adaptation could see the U.S. lose its edge as the crypto landscape rapidly transforms globally.

The US used to lead the way, will they be left behind?

These regulatory blows target not just crypto, but the fundamental right to privacy itself.

Car makers don't face suits over every accident. Gun manufacturers aren't jailed for misuse of their products.

So why are privacy tools in crypto getting treated as criminal accessories?

Persecuting open source software is the modern equivalent to the Dark Ages. Back then, it was books. Today, it is source code.

This is regulation by enforcement, driven largely by Lizzie Warren and Go Away Gary.

They claim it's to thwart terrorists, traffickers and dealers.

But let’s not get it twisted, it is about monitoring and controlling the money supply. They want us on their system, not our own system.

The blockchain sparked a revolution precisely to escape the fiat paradigm while retaining financial privacy.

Their system demands KYC that subjects us to data breaches. 5 billion plus known records breached so far in over 2000 publicly disclosed incidents in 2024.

Crypto has seen its hacks and exploits, but legacy finance permitted $3.1 trillion in dirty money flows last year alone.

I thought they were supposed to be protecting us. Maybe we should just protect ourselves.

For now, true self-custody remains a bastion of privacy. But for how long? What privacy options will even remain in crypto?

...It's a secret, out of respect for that very principle.

We're in a financial revolution. History will enshrine those who persisted, not those who deserted the battlefield.

This is a fight for our rights after all. Will you retreat for easier pastures or will you lock arms with us and brave this battle together?

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