Over the past decade, cryptocurrency has taken the U.S. consumer market by storm. It has opened up new ways to invest, raise funds, send money and even hedge against the U.S. dollar inflation through Bitcoin.
But 2022 took a less optimistic turn, as we witnessed the collapse of FTX, Voyager, Celsius and others. In 2023, we’ve seen the Securities and Exchange Commission (SEC) pursue multiple U.S. crypto exchanges (i.e. Kraken, Coinbase (COIN), Bittrex) in an ongoing turf war to regulate the U.S. crypto market. Skeptics have begun to grow in number and the question has arisen: Is crypto dead or alive in the United States?
To understand the current state of the cryptocurrency market, it is essential to examine the factors that have contributed to its volatility in recent years. One of the primary reasons for the market’s instability is the lack of regulatory oversight. Cryptocurrencies are decentralized, meaning they operate outside the control of governments or financial institutions. This creates a fear that cryptocurrencies will become a preferred tool for money laundering, tax evasion and other illegal activities. Additionally, the market’s volatility has been exacerbated by the lack of liquidity and the absence of reliable valuation metrics, making cryptocurrencies vulnerable to speculative trading.
Is Chamath Palihapitiya right?
In an interview with CNBC, tech investor Chamath Palihapitiya proclaimed that “crypto is dead in America,” citing the lack of regulatory clarity and the government’s focus on the traditional financial system as reasons for the decline of the cryptocurrency market. He also stated that the market’s volatility and lack of liquidity make it a poor investment choice for most people. However, he acknowledged that cryptocurrencies may still have a future in other parts of the world.
This doesn’t mean that Chamath thinks crypto is destined to be dead, or that it couldn’t thrive in the United States. Like many skeptics right now, it’s the uncertainty by the U.S. government to develop a proper framework and set of rules for crypto companies and projects to abide by that frightens investors and entrepreneurs in the industry.
SEC crackdown in the U.S. market
The majority of this skepticism can be attributed to the SEC taking a firm stance on regulating the crypto market. Gary Gensler, the chair of the SEC, has defended the agency’s crackdown on cryptocurrencies, stating that it is necessary to protect investors. Gensler has previously expressed concerns about the lack of regulation in the cryptocurrency industry and has called for greater oversight. In his latest comments, he argued that the SEC has a responsibility to ensure that investors are protected and that the market is free from fraud and manipulation.
Gensler has been criticized heavily for a lack of clarity and guidance from the SEC on which cryptocurrencies should be treated as securities. This was prominent on Capitol Hill in April, when Gensler testified before Congress, but was unable to clearly state if Ethereum (the second-biggest cryptocurrency in the world by market cap) is or is not a security.
Crypto is fighting back
Recently, Coinbase, one of the world’s largest cryptocurrency exchanges, sued the SEC for engaging in an unauthorized and unlawful effort to regulate cryptocurrencies. The lawsuit comes after months of silence from the SEC regarding Coinbase’s plans to launch a lending product that the SEC claims would qualify as a security. Coinbase has argued that the product is not a security and that the SEC has overstepped its boundary by trying to regulate the cryptocurrency industry without proper authority.
In the lawsuit, Coinbase will argue that the SEC has failed to provide clear guidance on the regulatory status of cryptocurrencies and that its actions have created uncertainty in the market. The company also claims that the SEC’s actions have harmed its business by delaying the launch of the lending product and causing damage to its reputation. Coinbase is seeking a court order to prevent the SEC from taking any action against the company and a declaration that the lending product is not a security under U.S. law.
Crypto is alive, and stronger than you think
In the end, the U.S. market has been instrumental in innovating in the blockchain industry, driving new financial ideas and solutions through cryptocurrencies that can help millions of people around the world gain access to traditional financial tools. Bitcoin and the rest of the crypto market have seen a resurgence in price to start 2023 and have stood strong in the wake of U.S. dollar inflation, bank failures and increasing national debt—not to mention the SEC watchdog trying to take a bite out of everything.
Like anyone, I hope for and am rooting that the crypto industry can persevere through these growing pains. The silver lining is that support is growing in Congress, many companies are helping educate lawmakers, and courts are likely to favor innovation and fair rulemaking. Ultimately, the fear of China out-innovating the United States still looms as a far scarier threat. The clock is ticking, but crypto is still alive and well.
Brandon Zemp is an entrepreneur and investor who graduated with a neuroscience degree from Pitzer College in Claremont, Calif. He is the author of The Future Economy: A Crypto Insider’s Guide to the Tech Dismantling Traditional Banking. Zemp made his mark early on as a trader in the fast-paced crypto market, and soon established his first company, BlockHash LLC, a blockchain consultancy providing educational resources for small business owners, students, developers, and investors. In Colombia, Zemp has started another blockchain consultancy, Blocolombia SAS, which is tailored to the Colombian economy. With Blocolombia, he has managed projects for politicians and other agencies in Colombia while helping pioneer the country’s blockchain ecosystem. Zemp is host of the podcast Blockhash: Exploring the Blockchain, where he interviews top executives and founders in the industry.