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Elizabeth Napolitano is a news reporter at CoinDesk.
“Political opportunism and demagoguery” are the largest drivers of the regulatory crackdown and federal banking restrictions on US-based cryptocurrency companies,” Jason Weinstein, a partner at Steptoe, said during a panel at Consensus 2023.
U.S. regulators like the SEC and CFTC have always engaged in an “arms race” to rein in the cryptocurrency industry. However, the multi-billion-dollar collapse of crypto exchange FTX has triggered a particularly “tough” wave of crypto regulatory crackdowns, including those on prominent crypto exchanges like Kraken and Coinbase, Weinstein told a live audience in Austin, Texas..
“I was at the Department of Justice [DOJ] for 15 years, and I’ve never seen a circumstance in which agencies tripped over themselves so aggressively to show how tough they can be on a lawful industry,” said Weinstein.
Recent attempts to strong arm crypto have also affected a large swath of the industry, including both centralized cryptocurrency exchanges and decentralized finance protocols. The severity with which regulators have attacked the industry, he says, has much to do with the embarrassment the collapse of FTX caused politicians and less to do with the broader cryptocurrency industry’s activities.
“The FTX case made the [regulatory environment] worse, but the FTX case is not about crypto,” said Weinstein. “It’s about good, old-fashioned fraud and self-dealing — the same kind of s–t we saw in Enron.”
It’s an environment that has caused both startups and more mature companies to seek a life raft to “get the hell out of the United States,” according to Weinstein.
“Startups and mature companies are asking how they can locate outside the United States to try to avoid US jurisdiction, not because they’re trying to do something wrong, but because the US makes it hard to innovate and build even when you’re trying to do it,” Weinstein said.
Rebecca Rettig, chief policy officer at Polygon, warned the tougher regulatory environment could fuel a mass exodus of crypto companies from the US. However, the US’ loss will hopefully be another country’s gain, she said.
“This is a global and borderless industry,” said Rettig. “People think this is a real opportunity overseas to bring the next stage of the internet — both financial and technological — into their country. This is good for their economies.”
Edited by Henry Bond and Jeanhee Kim.
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Elizabeth Napolitano is a news reporter at CoinDesk.
Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.
Elizabeth Napolitano is a news reporter at CoinDesk.
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Opportunism and demagoguery are fueling the recent U.S. regulatory crackdown, according to Washington partner at Steptoe & Johnson, Roger Marcus. Marcus was speaking during an online conference of the Bloomberg Regulatory Summit on Wednesday.
Marcus attributed the situation to the administrations of both political parties, who, according to him, are using the current crisis as an opportunity to advance their agendas.
“There is a lot of political opportunity here, especially for parties in power,” he said. He went on to explain that when faced with difficult questions for which there are no easy answers, policymakers are more likely to resort to demagoguery. Demagoguery is a pejorative term used to describe political tactics that rely on emotion and rhetoric instead of facts and specific plans.
Marcus noted a “rush” among regulators to show that they are proactive and responsive to the crisis, especially in areas such as healthcare, technology and financial services. This has led to a number of inconsistent and conflicting rulings and market interventions that ultimately do not solve the underlying problems they were intended to address.
In addition to the potential pitfalls of opportunism and demagoguery, Marcus also raised another issue – artificial intelligence (AI) and its potential to disrupt traditional regulatory frameworks.
“AI is a growing concern for regulators,” he said. “It can make significant changes in ways that are difficult to anticipate, meaning regular rules are unlikely to keep up. It’s a combination of government intervention and technological innovation that is challenging traditional market and regulatory models. This means that regulators should be ready to adopt different policies and practices to cope with the new environment.”
Marcus concluded by noting that, in an age of rapid technological change, governments will have to take a more active role in managing the impact of rapid technological changes, which may require a completely new set of rules. It is important, he said, for governments to balance their oversight and enforcement of the legal and regulatory framework with flexibility and pragmatism.
