The SEC has launched a full-on assault on the crypto industry, and experts predict this is only the beginning. The agency has been taking a tough stance against digital assets and cryptocurrency firms, targeting ICOs and calling out cryptocurrencies that it deems to be operating as unregistered securities. The SEC’s motivation behind these actions is to safeguard investors from the risks inherent in cryptocurrency investments. The decentralized and unregulated nature of the crypto market presents opportunities for fraud and scams. The SEC is responsible for ensuring that investors are protected, and financial markets remain fair. In their view, the crypto market poses a significant threat to achieving these goals. According to a recent report, the US Securities and Exchange Commission (SEC) is reportedly considering new regulations that could prevent hedge funds from partnering with crypto custodians. This move, if implemented, could cause significant disruptions in the rapidly growing cryptocurrency market.
Regulatory Roadblocks For Hedge Funds In Crypto
The SEC could be a buzzkill for the burgeoning relationship between the crypto and traditional financial worlds. Insiders with knowledge of the situation are reporting that the top US regulator is mulling over a potential ban on hedge funds, pension funds, and private equity firms partnering with crypto custodians.
According to insiders, the US SEC is poised to shake up the crypto industry on Wednesday, February 15, with a proposal that could make it more difficult for crypto firms to qualify as custodians. Currently, qualified crypto custodians are authorized to securely hold and store digital assets on behalf of their clients. However, a representative from the SEC declined to comment on the situation.
SEC Dives Deeper Into Crypto Regulation
This week has brought drastic changes to the regulatory framework of the crypto space as the SEC has fined a whopping $30 million on Kraken’s crypto staking and is now stretching its regulatory eyes to Binance’s BUSD stablecoin issuer Paxos. The crypto market has been caught in the crosshairs of regulators across the globe, and according to Marcus Sotiriou, a digital asset broker at GlobalBlock, this is only the beginning. The recent crackdowns by both the New York Department of Financial Services (NYDFS) and the US Securities and Exchange Commission (SEC) against Paxos have ignited a wave of bearish sentiments throughout the cryptocurrency industry.
Moreover, the SEC is now planning to ban hedge funds’ which are partnered with crypto firms through a proposed rule. Hedge funds and pension funds are required to entrust their crypto assets to qualified custodians, but this arrangement could soon become a thing of the past. The proposed rule change could leave institutional funds that deal with crypto no choice but to transfer their funds to other custodians while also facing surprise audits and checks on their custodial relationships.
Insiders have spilled the beans to Bloomberg about the possible rule change but have kept mum about the specifics of the regulatory amendments that the agency might pursue. If this holds water, the SEC may be on a mission to nip in the bud any threats that the crypto market might pose to the broader financial system.
The SEC staff has been in a two-year-long tug-of-war over the eligibility of custodians for crypto assets since 2020. With the SEC cracking down on the crypto market, market sentiment has already taken a hit, resulting in Bitcoin and other cryptocurrencies facing selling pressure after a promising start to 2023.
To greenlight any rule change, all five SEC commissioners have to give the nod and put the proposal up for public comment. The SEC will then incorporate feedback before it’s put to another vote.
