The cryptocurrency market is off to a better start in 2023 than many expected post-FTX.
This, as a spate of recent industry actions and regulatory probes urge the sector into what observers hope may be a new era of maturity and clarity around retail investor protections, at least from scams and fraud, if not from perennially overhyped assets and tokens.
In its annual report to shareholders filed Monday (Feb. 27), retail investor-focused trading app Robinhood revealed that the Securities and Exchange Commission (SEC) is investigating the platform’s crypto line of business.
“In December 2022, following the bankruptcies of several major cryptocurrency trading venues and lending platforms… we received an investigative subpoena from the SEC regarding, among other topics, RHC’s [Robinhood Crypto] cryptocurrency listings, custody of cryptocurrencies, and platform operations,” the company’s Form 10-K stated.
“We will work with the SEC and continue to advocate for what we think is right for our customers,” Robinhood CEO Vlad Tenev told investors on the company’s most recent earnings call.
Robinhood Crypto is licensed to operate and provide retail investors with digital asset trading products across more than half of the U.S., holding either a money transmitter license or a currency transmitter license in 28 states and the District of Columbia.
The commission-free trading platform shed around 800,000 monthly active users during its last fiscal quarter, as crypto marketplace collapses combined with a challenging equities macroclimate put a damper on overall retail investor appetite.
U.S.-based crypto exchange Coinbase is dropping the Binance-branded BUSD stablecoin from its platform, claiming the world’s third-largest stablecoin by market capitalization does not meet Coinbase’s own internal digital asset listing standards.
While Coinbase may have seen a strategic benefit to de-listing a virtual asset linked to one of its marketplace competitors — Coinbase issues its own USDC stablecoin product for facilitating crypto market trading in partnership with Web3 company Circle — the decision also likely stemmed from recent regulatory actions taken against the BUSD stablecoin and its partners by the SEC and New York Department of Financial Services (NYDFS).
See also: NYDFS Upgrades Its Crypto Fraud Detection Arsenal
The SEC and NYDFS have also separately moved in recent days to strike down Binance’s American business line’s acquisition of bankrupt former crypto rival Voyager.
Crypto represents one of the most revolutionary and yet still over-hyped inventions of the 21st century. For years, the future-fit digital asset ecosystem flourished in the U.S. thanks to friendly state-level approaches and little intervention from federal lawmakers.
Now, the tide is turning toward seemingly inevitable industry regulation and new consumer protections in the wake of widespread industry disaster over the past year, where each successively fallen domino revealed the pitfalls of what can happen to trusting consumers in an unregulated industry riddled with mismanagement and alleged fraud, where everyone believes — or did at the time — that they will be able to get rich quickly.
In the absence of comprehensive U.S. federal regulations for the digital asset industry, some states are moving to fill the vacuum themselves.
Illinois lawmakers are reportedly advocating for a new crypto regulatory system based on New York’s own BitLicense.
A coordinated pair of bills have been introduced to potentially establish a crypto license for the state, as well as crucial consumer protections requiring disclosures and the safeguarding of customer assets, among other retail investor-focused and anti-scam guardrails.
Still, state-level regulatory equivalents of New York’s BitLicense are not without their detractors.
“[C]linging to the BitLicense is irrational,” Alex Adelman, CEO of bitcoin rewards app Lolli wrote in a previous Op-Ed for crypto media site CoinDesk. “The license is a relic, representing the NYDFS’ failed hopes that it would serve as a model for other states with its ‘regulation by strangulation’ approach.”
“By pouring pesticide on the industry, the BitLicense also zaps new shoots, indiscriminately stemming life in the sector such that only giants such as Square and Coinbase, both of which hold BitLicenses, can survive,” he added.
California saw its own BitLicense-inspired legislative effort vetoed by Gov. Gavin Newsom Sep. 23.
Citing the uncertain regulatory landscape, as well as the lack of clarity over consumer protections, both Visa and Mastercard have reportedly decided to push back the launch of their own products and services related to crypto.
“Recent high-profile failures in the crypto sector are an important reminder that we have a long way to go before crypto becomes a part of mainstream payments and financial services,” a spokesperson for Visa, the world’s largest payment processor, said per a Reuters article published Tuesday (Feb. 28) relaying the news.
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