By: Nikhilesh De, CoinDesk’s managing editor.

Can you believe this year started off with U.S. law enforcement officials arresting two individuals in connection with the 2016 Bitfinex hacked funds? For this week’s newsletter, the 102nd since we first launched in 2021, I asked CoinDesk’s Policy Team what they’re looking out for this upcoming year.

You’re reading State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. Click here to sign up for future editions.

What a year

The narrative

CoinDesk’s regulation team lays out what we’re looking at this upcoming year.

Why it matters

Crypto’s growing stature in the world will draw increasing amounts of attention from regulators.

Breaking it down

Nikhilesh De (U.S.): This year did not play out quite as expected. While the idea that the bull market would end and a new crypto winter would hit was understood and expected, the sheer scale of this year’s failures seemed to catch a lot of people by surprise.

Next year will not, I suspect, be pretty. Cheyenne Ligon gets into this as well a bit further down, but as the current bankruptcy cases advance and possible new bankruptcies arise, the industry will have to deal more and more with a lot of questions around user privacy and consumer protections.

Whether crypto exchange customers can expect their personal information to remain redacted, should the provider enter bankruptcy, will continue to be a growing question for courts. This year we saw that question arise with companies like Celsius and FTX. Judges initially allowed the companies to file their creditors’ information under seal, but Celsius later released the names and holdings of all of its customers, while FTX is currently going through hearings about the same issue.

The U.S. Securities and Exchange Commission (SEC) may also be gearing up to force exchanges into compliance with existing rules. SEC Chair Gary Gensler has long said he believes his agency has the authority it needs to regulate crypto companies, and that the law is clear in his view that most cryptocurrencies are securities and therefore more crypto exchanges are securities trading platforms. More recently, the SEC has suggested that it may be moving closer to actually doing something about this; Enforcement Director Gurbir Grewal said the runway for crypto companies is getting shorter, and the collapse of FTX has heightened the pressure for regulators to get a hold of this industry before something else falls apart.

I don’t expect too much in the way of legislative activity. While I know we’ll see additional bills introduced, including the highly anticipated stablecoin legislation from the House Financial Services Committee, the bigger question remains whether there will be enough bipartisan support in both the House and the Senate to actually pass anything into law. Jesse Hamilton provides his own view on legislation further down.

That being said, it’s hard to say this year was anything but a black mark for the industry in the eyes of regulators. The collapse of Terra/Luna, the bankruptcies of basically the entire crypto lender sector (minus Nexo, which still ended up leaving the U.S.), the meltdown of FTX (the largest exchange failure in years) – these are all events that will pressure regulators worldwide. The Facebook (now Meta)-led Libra (later Diem) project and the global backlash to it tells us how regulators may respond as well. It may not be a quick response, but years after Facebook first introduced Libra, lawmakers from different nations developed stablecoin regulations to rein in the sector. I suspect we’ll see a similar response in reaction to this year’s events.

Read more…