Jesse Powell. Source: Medium
It’s only been a few days since Kraken, one of the largest exchanges in the U.S., shut down its staking services and paid a $30 million settlement over selling – according to the SEC – unlicensed securities.
Despite compliance with regulators and a commitment to proof of reserves, both Kraken and Binance have been under fire recently, albeit for different reasons.
According to the former Kraken CEO, Jesse Powell, regulators may be allowing bad actors to carry out their schemes in an attempt to put cryptocurrencies in a bad light and shut down genuine exchanges that often succumb to wars of attrition with dishonest firms that essentially print their own resources whenever needed.
Once the good guys have given up, the SEC and other regulators can then crack down on the bad actors who were allegedly allowed to carry on without interference until their competition was quashed.
I have a theory: Regulators let the bad guys get big and blow up because it serves their agenda.
1. destroy capital/resources in crypto ecosystem
2. burn people, deter adoption
3. give air cover to attack good actors The bad guys are actually on-side. Good guys are the enemy.
Powell’s venting is likely the result of prior events, as both he and Caitlin Long allegedly warned regulators of certain fishy deals in the crypto industry.
Although neither crypto heavy hitter specified which case they were talking about, someone with that level of knowledge of the industry would probably have one or more of the recent examples to choose from.
In the case of Caitlin Long – the founder and CEO of Custodia Bank – evidence of probable crimes had been handed over to LEOs, without any action being taken.
“I’m publicly disclosing for the first time that (a) I handed over evidence to law enforcement of probable crimes committed by a big crypto fraud, starting months before that company imploded and stuck its millions of customers with losses, and I warned bank regulators of mounting bank-run risk inside banks serving the crypto industry b4 the bank runs ultimately hit.”
Long is now pushing for a bipartisan bill that would regulate the crypto industry the same way mutual funds became properly supervised in the 1940s.
Although cases like this are understandably frustrating for those who sounded the alarm to regulators ahead of time, it’s worth noting that details of legal investigations are often unsealed years, if not decades later. As a result, it’s possible that both Long and Powell’s advice was heeded by regulators, who are simply keeping it under wraps for now.