US regulation hurts crypto industry.

Key Takeaways

• Last week, Coinbase and Binance were sued and a list of tokens were declared securities by the SEC, as the US regulatory crackdown on the crypto industry continues.
• Crypto.com has decided to shut down its institutional exchange due to lower demand following recent events in the industry.
• According to our Head of Research, while retail investors will still be able to access crypto, institutional capital will dwindle, which will dampen the industry’s trajectory going forward.

The US crypto industry is currently facing a major regulatory clampdown. Some people argue that crypto will be fine, as it has always considered itself as the underdog and is inherently decentralized, and besides, it can move offshore. However, others are not so sure. The SEC may not be able to shut down the entire cryptocurrency industry, but they can shut down the US crypto industry, which represents a big problem.

The US is the world’s largest financial market and has an estimated 45 million crypto owners, ranking behind only India and China. Institutional cash was also flowing into the space at one point, with Tesla buying $1.5 billion of Bitcoin and ProShares launching the first futures-based Bitcoin ETF. However, the trajectory has now reversed, with prices and volumes collapsing, and crypto’s reputation being tarnished by high-profile scandals.

Regulators are now putting the squeeze on the industry. The two biggest exchanges, Coinbase and Binance, were sued, and a number of cryptocurrencies were declared as securities by the SEC. Retail investors are already feeling the effects, with Robinhood and eToro suspending trading for tokens that were formally outlined as securities. While retail investors are less sensitive to regulation, institutions are finding it increasingly difficult to invest in crypto due to the regulatory crackdown.

The regulatory crackdown is hurting crypto immensely, as it is becoming harder to imagine US institutions and “Wall Street” capital moving into the space. Crypto.com even announced that it was shutting down its institutional exchange due to a lack of demand in the wake of events in the industry. While this may not be terminal for crypto, institutional capital is dwindling, which will dampen the industry’s trajectory going forward.

• Gary Gensler envisions regulating crypto brokers, creating a Catch-22 situation.
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• Binance sues SEC.

Do not misunderstand, this is a significant issue for cryptocurrency, regardless of arguments some groups may make about decentralization or other types of inherent immunity the industry may possess. The US market is too substantial, and even if cryptocurrency thrives in other places, it will never achieve the same level of success without the support of the US.