Bitcoin Draws More Scrutiny From Regulators Worried About Fraud

Regulators are signaling they want more control over an expanded cryptocurrency universe that has pushed further into Wall Street activities without the investor and consumer protections that apply to traditional securities and financial services.

The catch: no single regulator inspects crypto exchanges or brokers, unlike in the securities and derivatives markets. Regulators step in only when they believe U.S. law applies to a particular cryptocurrency or transaction, based on the way the asset was sold or traded.

Once a quirky asset that required navigating special exchanges to buy, cryptocurrencies can now be easily purchased on mobile apps from PayPal Holdings Inc., Square Inc.’s Cash app and Robinhood Markets Inc.

“A lot more money is being put into it, there is a lot of trading and the uses seem to be expanding,” said Dan Berkovitz, a commissioner on the Commodity Futures Trading Commission. “I see a concern about whether we have a shadow financial system developing, and that should be a question for all of the regulators.”

Securities and Exchange Commission Chairman Gary Gensler has told House lawmakers that investor protection rules should apply to crypto exchanges, similar to those that cover equities and derivatives. Regulated exchanges are required by law to have rules that prevent fraud and promote fairness. But crypto exchanges face no such standard, Mr. Gensler said at the Piper Sandler Global Exchange and FinTech conference last month.

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China proves Bitcoin is an unstoppable machine: Bitcoin Center founder

China’s crackdown on Bitcoin (BTC) mining continues to face determined responses across the crypto ecosystem. One of the first BTC exchange operators and co-founder of Zap Protocol, Nick Spanos, said that the crackdown only proves Bitcoin is an unstoppable machine “if the world’s second-biggest economy can’t crush, devalue and manipulate Bitcoin.”

Noting that the crackdown is increasing scarcity due to there being fewer miners relative to the transaction volume, Spanos underscored the increase in miners’ profits while the mining difficulty continues to decrease. He explained:

“Bitcoin’s algorithm adjusts roughly every two weeks to allow one block of transactions to be mined every 10 minutes. So, it’s become both easier and more profitable to mine Bitcoin. That’s a recipe for enticing more miners back in.”

Spanos said miners moving out of China will seek to find a place with immediate neighbors, such as Kazakhstan, Iran and Russia. “Others in the region would also be well-served to seize this opportunity,” he added. Recently, one of the major mining groups operating in China announced its plans to move out of the country and distribute its mining operations among the United Arab Emirates, Canada, the United States, Kazakhstan and Iceland.

Spanos noted that Bitcoin’s price has always gone up once regulatory setbacks are “digested by the community.” 

Last week, Galaxy Digital CEO Mike Novogratz saw “a big net positive” for Bitcoin in China’s crackdown attempt. He said that the market crash from an all-time high followed by high volatility was a successful test for the crypto ecosystem as a whole.