'Opportunism and Demagoguery' Fuel the U.S. Regulatory Crackdown, Steptoe Partner Says

AUSTIN, Texas —“Political opportunism and demagoguery” are the largest drivers of the regulatory crackdown and federal banking restrictions on U.S.-based cryptocurrency companies,” Jason Weinstein, a partner at Steptoe, said during a panel at Consensus 2023.

U.S. regulators such as the Securities and Exchange Commission and Commodity Futures Trading Commission have always engaged in an “arms race” to rein in the cryptocurrency industry. However, the multi-billion dollar collapse of crypto exchange FTX has triggered a particularly “tough” wave of crypto regulatory crackdowns, including those on prominent crypto exchanges including Kraken and Coinbase, Weinstein said.

“I was at the Department of Justice [DOJ] for 15 years, and I’ve never seen a circumstance in which agencies tripped over themselves so aggressively to show how tough they can be on a lawful industry,” said Weinstein.

Read full coverage of Consensus 2023 here.

Recent attempts to strong-arm crypto have also affected a large swath of the industry, including both centralized cryptocurrency exchanges and decentralized finance (DeFi) protocols. The severity with which regulators have attacked the industry, he said, has much to do with the embarrassment the collapse of FTX caused politicians and less to do with the broader cryptocurrency industry’s activities.

“The FTX case made the [regulatory environment] worse, but the FTX case is not about crypto,” said Weinstein. “It’s about good, old-fashioned fraud and self-dealing – the same kind of s**t we saw in Enron.”

It’s an environment that has caused both startups and more mature companies to seek a life raft to “get the hell out of the United States,” according to Weinstein.

“Startups and mature companies are asking how they can locate outside the United States to try to avoid U.S. jurisdiction, not because they're trying to do something wrong but because the U.S. makes it hard to innovate and build even when you're trying to do it,” Weinstein said.

Rebecca Rettig, chief policy officer at Polygon, warned the tougher regulatory environment could fuel a mass exodus of crypto companies from the U.S.. However, the U.S.' loss will hopefully be another country’s gain, she said.

“This is a global and borderless industry,” said Rettig. “People think this is a real opportunity overseas to bring the next stage of the internet, both financial and technological, into their country. This is good for their economies.”