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U.S. Regulators Increase Scrutiny on Crypto Firms Amid Rising Market Manipulation Concerns

The crypto industry has experienced significant growth due to the influx of new investors, enhancing adoption but also increasing scrutiny from regulators.

The industry now faces increased attention from regulatory bodies concerned with market manipulation, investor protection, and potential illicit uses of cryptocurrency.

The United States Commodity Futures Trading Commission (CFTC) has indicated a rise in enforcement actions within the next six months to two years.

During the 27th Annual Milken Institute Global Conference on May 6, CFTC Chair Rostin Behnam highlighted concerns about potential crypto-centered scams and frauds due to the surge in cryptocurrency prices and the participation of inexperienced retail investors.

Behnam expressed, “We’re going to probably see in the next 6 to 18 months, or 6 to 24 months, another cycle of enforcement actions because of this cycle of asset appreciation and interest by retail investors.”

In 2023, both the CFTC and the Securities and Exchange Commission (SEC) increased their enforcement actions, with the SEC tripling its number of administrative proceedings and initiating 46 enforcement actions, imposing $281 million in fines for settlements.

These enforcement actions have targeted a range of crypto firms, with notable actions against large platforms like Kraken, Binance, and Coinbase.

The SEC has focused particularly on firms with broker-dealer business models. Patrick Gruhn, a former partner at Crypto Lawyers, emphasized the SEC’s strategy, stating, “The SEC targets business models and firms that, from a high-level perspective, compete with traditional finance, e.g., broker-dealers.

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If a project or company allows people to speculate on the price of crypto assets or generate interest-like payments, such a firm or project team is at risk, whether it considers itself decentralized or not.”

There is also a significant focus on privacy and mixer tools, with actions against services like Tornado Cash and the privacy-focused Samurai wallet.

This has sparked a mix of reactions in the crypto community, with many opposing the targeting of service creators who believe they are engaging in legal activities.

The lack of a unified regulatory framework in the U.S. has led to a complex environment for crypto firms, influencing how new and existing companies navigate the market.

As noted by Keith Blackman of the Bracewell law firm, the absence of clear regulations increases the need for companies to invest heavily in legal and compliance services, potentially stifling innovation and deterring new market entrants.

Despite regulatory challenges, the crypto market continues to attract interest from traditional finance, with new investment products like spot Bitcoin exchange-traded funds and the growing political influence of crypto holders.

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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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