U.S. SEC targets Do Kwon and Paxos as regulators press on, bitcoin leads recovery
Last week was marked with considerable activity in the crypto scene, characterized by a cluster of significant events, including the sustenance of regulatory crackdowns and market recovery. The U.S. SEC’s pursuit of greater control over the crypto space was of particular interest, which saw the agency set its eyes on Paxos and Do Kwon. Despite these challenges, the cryptocurrency markets rallied, promising investors and enthusiasts alike a glimmer of hope.
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U.S. SEC looks to bring crypto under its control
After facing widespread criticism from the broader crypto industry for its enforcement actions against Kraken two weeks ago, the U.S. Securities and Exchange Commission (SEC) continued its regulatory crackdown last week, focusing on Paxos and Do Kwon.
Last Monday, the regulatory watchdog announced its intention to pursue legal action against Paxos, the blockchain-based financial firm responsible for issuing Binance USD (BUSD). The SEC cited violations of investor protection provisions related to the distribution of securities. It gave a Wells notice to Paxos regarding the matter.
Paxos released a statement in response, strongly disputing the SEC’s claim that BUSD is a security that falls under the purview of federal regulations. The New York-based company clarified that no other allegations had been made against them. They plan to continue engaging with the regulator on the issue. Furthermore, Paxos expressed a readiness to take the matter to court if necessary.
Nonetheless, in a similar regulatory effort, last Monday, the New York Department of Financial Services (NYDFS), the agency responsible for overseeing Paxos, ordered the blockchain firm to discontinue the minting of new BUSD by Feb. 21 – an order which Paxos had to comply with.
As events related to Paxos and the SEC unfolded, the wider cryptocurrency community raised concerns about the regulatory climate in the U.S. crypto industry. This was mainly in light of the SEC’s recent enforcement actions besides its Wells notice to Paxos. While there were reports suggesting Circle’s involvement in the matter, the P2P tech company has refuted these claims.
Following issuing a Wells notice to Paxos, the SEC turned its attention towards Do Kwon and Terraform Labs, ultimately charging the South Korean developer and his failed enterprise. In a press release on Feb. 17, the SEC accused Do Kwon of deceiving investors in cryptocurrency schemes involving an algorithmic stablecoin and other assets that qualify as securities.
The SEC also accused Do Kwon and Terraform Labs of utilizing a “masked” trading firm located in the U.S. in an attempt to re-peg the value of the collapsed TerraUSD (UST) stablecoin when it first encountered problems in May 2021. The firm in question was eventually revealed to be Jump Trading. While the SEC has not yet filed charges against the company, its involvement in the Terra incident continues to be a matter of significant interest.
Despite the SEC’s eventual focus on Do Kwon and Terraform Labs, cryptocurrency community members feel that the American regulator’s involvement has come too late. South Korean authorities were the first to initiate an investigation into Do Kwon and the collapse of Terra, and, as part of their probe, last week, they requested an arrest warrant for the former CEO of Tmon, an e-commerce company. The authorities claim that he accepted bribes from Daniel Shin, a co-founder of Terra, to promote UST.
Besides Do Kwon and Paxos, the U.S. SEC also turned its attention to former NBA player Paul Pierce last week. The agency leveled charges on Pierce for his part in promoting the failed EthereumMax (EMAX) project that led to investors’ losses. The SEC alleged that Pierce was paid over $244,000 worth of EMAX but failed to disclose his compensation for promoting the asset. Pierce agreed to pay $1.4m to settle the charges.
Other regulatory efforts
The U.S. SEC Chairperson Gary Gensler further highlighted the importance of proper regulation for crypto custody activities as the regulatory agency continued to bring the U.S. crypto scene under control. Gensler disclosed that the SEC is examining potential ways to include crypto custody within the current regulatory framework or even create a new one to ensure proper sector oversight.
The recent surge in regulatory efforts has been partly triggered by the FTX collapse, which exposed the need for proper oversight of the crypto industry. In the wake of previous reports suggesting that FTX founder Sam Bankman-Fried used company funds to make campaign donations for politicians, a bill emerged last week from the Kansas legislature seeking to put a $100 cap on crypto donations for political campaigns.
The increasing regulatory efforts in the crypto industry subsequently led mainstream banks to sever ties with crypto-related businesses to avoid getting caught up in regulatory scrutiny. This approach may push crypto companies to consider moving their operations to more crypto-friendly jurisdictions – a pattern that appears to have picked up of late.
Meanwhile, the regulatory landscape in Asia became even more stringent last week, with the formation of a new partnership between South Korea and Hong Kong aimed at curbing the illegal use of cryptocurrencies in cross-border transactions. This partnership was established in response to reports that over 60% of illicit crypto-related transactions identified in South Korea had Hong Kong as their destination.
Under the partnership, both regions plan to collaborate closely by sharing relevant information to combat illegal transnational transactions involving cryptocurrencies. They aim to exchange intelligence and work together to crack down on these illicit activities.
This collaboration came up amidst reports of Hong Kong’s intentions to finally legalize cryptocurrency trades for all its citizens as it looks to establish a crypto hub in the heart of Asia. The administrative region plans to allow all its citizens to purchase, trade and sell cryptocurrencies by Jun. 1.
Bitcoin leads the crypto recovery
The dominant regulatory scrutiny last week did little to hamper bitcoin’s (BTC) growth, as the asset leveraged a series of rallies to clinch a 6-month high value. The broader crypto market also capitalized on this campaign, leading to massive gains for several altcoins.
Last Tuesday, bitcoin surged by 2.9% in 24 hours, reclaiming the $22,000 price territory as it reached a value of $22,230. The sudden upsurge came on the heels of reports that long-term asset holders remain unfazed by market turbulence. Data revealed that the percentage of BTC last moved in at least two years had hit a new ATH of 49.86%.
Shortly after, a CryptoQuant analysis suggested that this year is the best time to accumulate bitcoin, as the asset appears to be gearing up for a breakout. CryptoQuant author Dan Lim and points analyzed the BTC MVRV ratio, which signals further dips for bitcoin are unlikely.
A day after the CryptoQuant analysis surfaced, BTC reclaimed a 6-month high of $24,900. The asset’s massive rally supported altcoins, which also registered impressive gains at the time. Data further revealed that bitcoin and ethereum (ETH) were seeing renewed optimism in the derivatives scene.
Despite facing fierce resistance at the $24,900 territory on Feb. 16, bitcoin’s campaign persisted, leading to a reclamation of the $25,000 zone on the same day for the first time since last August. As the asset’s upsurge spilled to the rest of the market, the global cryptocurrency market increased by an estimated $100b in 24 hours.
Consequently, several altcoins surged to new all-time highs in the wake of the market-wide uptrend. These altcoins include OKB, GMX, VELA, and OAS, among others. Amid the rally, the global crypto market cap surged to $1.12 trillion. Meanwhile, bitcoin ended the week with a value of $24,631, representing a 12.6% increase from the $21,862 price it started the week with.
