DOES THE SEC ATTACK ON KRAKEN & PAXOS MARK THE END OF THE CRYPTO PHONEY WAR?

Is the crypto Phoney War finally over? Have we just witnessed the start of a major new offensive against crypto in the United States? Following the SEC (Securities and Exchange Commission) declaring BUSD a security and announcing a lawsuit against Paxos, BUSD has begun tanking. The company had already ceased minting the stablecoin, and as of twelve hours ago, according to Crypto Tips, over $830 million had left BUSD, while Binance announced it would no longer be using the stablecoin for trading.

This news comes just days after major San Francisco-based crypto exchange Kraken was bullied into agreeing to pay a $30 million settlement to the SEC for what can only be described as pedantic or unreasonably defined rule breaches. Notably, the exchange also had to agree to refrain from offering staking services to US citizens moving forward, which in its own right is disturbing. But, I’ll talk about that in another post. The point is that companies often reluctantly take the pragmatic approach, figuring it will be far cheaper and faster to pay the SEC off than engage in a lengthy legal battle.

Of course, the SEC going after crypto companies is nothing new. Under the heinous and utterly compromised leadership of Gary Gensler, the SEC has long acted like the mob enforcing a protection racket in 1930s Chicago. For example, there’s the ongoing battle royale between Ripple and the SEC, the face-off with US-based crypto exchange Coinbase, and I’ve lost count of how many ICOs Gensler and co. have gone after (granted, many of those needed to be reigned in). But the action against Kraken and Paxos is taking things to a new level - opening a new front if you will.

A last, desperate offensive to crush crypto

You see, to many in the crypto community, it was fairly clear that Ripple and Brian Armstrong-led Coinbase, would be up for a fight with the SEC if it came to it - but, not so with Kraken or Paxos. Both have been operating from the US for over a decade, and have become well-known for their compliance credentials. Both have gone to extraordinary efforts to remain compliant with the latest rules, despite the US authorities’ often schizophrenic attitudes toward crypto. But, even so, the SEC has now attacked. Back to the Phoney War analogy, you could say Paxos is Belgium and Kraken is the Netherlands in May 1940 - they thought scrupulously abiding by the rules would save them, but the Germans invaded anyway.

Yet it gets worse. The crypto space is now swirling with rumors that Circle, another proudly compliant crypto company, is about to receive a Wells notice from the SEC (a letter informing them an investigation has been concluded and reason to bring charges has been found). So much for all those planning to exchange their BUSD for USDC then! So, at this point, it might be an idea to take a step back and look at the big picture. The SEC, under Gensler, is launching a significant new offensive against crypto. Any idea that those companies trying to play by the rules will be safe has been shown to be misguided. And, let’s not forget timing. Many would say that the SEC, and Gensler personally, have the sword of Damocles hanging over them - with the FTX and Sam Bankman-Fried, Ripple, and Coinbase legal dramas likely to shed a light on some very iffy shenanigans.

I suspect that we are seeing the opening moves of an offensive designed to eviscerate the US crypto industry while the anti-crypto forces still have legitimacy. Those with vested interests in the legacy financial and political system, like Gensler and his DC cronies, know they need to discredit and weaken crypto while they are still protected by an illusion of legitimacy. If they fail, and crypto holds the front until the true extent of the political and regulatory collusion with crooks like Sam Bankman-Fried can be exposed, then crypto will finally have its chance to shine. But, don’t be fooled, Gensler and co. know this is their last window of opportunity to take down crypto - so be prepared for more cynical attacks.