Why regulators need to stop criticizing all cryptocurrency companies with the same brush

In the first weeks of 2023, news surfaced that Celsius founder Alex Mashinsky was being sued by the New York Attorney General for defrauding investors by covering up his company’s dire position while continuing to accept their deposits.

At roughly the same time, however, a judge ruled that the $4.3 billion locked up in Celsius’s various interest-bearing cryptocurrency accounts belonged to the bankrupt firm, not its clients.

Taken together, these two announcements are confusing.

If Celsius’s customers have been scammed out of their hard-earned capital, those assets should be returned to their rightful owners.


All terms and conditions set out in the small print should be void if it involves fraud.

However, just as we saw during the global financial crisis, it is customers who bear the brunt of an institution’s financial collapse.

With the ruling regarding ownership of Celsius’s assets, lawmakers have once again disappointed the public.

Let’s see how they do now. If and when the trials of FTX co-founder Sam Bankman-Fried or Mr. Mashinsky go ahead, we have to hope that – if they are found guilty of defrauding millions of people – there will be a fair and just sentence.

However, we must be careful to ensure innocent people are not drawn into the fray as lawmakers pretend to clean up cryptocurrencies.

We have to wonder why two out of three developers of Tornado Cash, the crypto-blending service that was sanctioned by the US Treasury Department last summer, are in custody without charge, while Mr. Bankman-Fried is on bail.

History repeats itself

It is worth mentioning that hardly anyone went to jail for the reckless behavior of global financial institutions that caused the 2008 financial crisis, which required government bailouts totaling $3 trillion printed between 2008 and 2014.

At great cost to the taxpayer, the same bank executives who caused the crash walked away without so much as a pat on the wrist and continue to rake in millions in bonuses to this day.

The cryptocurrency systems that are failing us today are modeled after these same financial institutions that failed us 15 years ago.

Unsurprisingly, then, we’re seeing them crumble alike, with eerie similarities.

Still, we can at least expect trials for the founders who caused so much financial ruin after the FTX and Celsius crash, which is more than can be said for anyone at Lehman Brothers, Fannie Mae and Freddie Mac, Wells Fargo, Royal Bank of Scotland, et al.

In a worrying sign, however, we are now seeing the US regulator prosecute scores of successful cryptocurrency players who have been hurt by the contagion of these disasters, as well as reputable platforms who have survived the recession.

Watch: What is Bitcoin and how did it start?

After circling Binance since late last year, the Justice Department is now investigating links to American hedge funds.

Similarly, Digital Currency Group (DCG), the owner of leading cryptocurrency brokerage Genesis, is facing investigations by the Department of Justice and the Securities and Exchange Commission.

It is DCG’s connection to FTX and Binance’s position as a major competitor to FTX that are attracting this regulatory scrutiny and it is having a negative effect on their customers’ trust.

Binance, for example, is experiencing unprecedented outflows as a result, with $12 billion leaving the platform in less than two months.

Where is the punishment due

However, it’s not Binance and DCG whose heads should be on the block.

The villains at the helm of FTX, Celsius, 3AC and Terra Luna are to blame, and we can’t wait for justice to be done.

Meanwhile, the cryptocurrency industry is moving to build a better and stronger ecosystem unburdened of the harmful cult of personality.

Cryptocurrencies – in pictures

The industry is still in its infancy. It hasn’t had the luxury of centuries of trust-building that traditional financial institutions enjoy.

The events of 2022 are a huge setback, but those truly committed to the cause will continue to build a system that is transparent, open source, immutable, and governed by consensus.

It will take time to build this industry to the point of mainstream adoption.

But it would be a much simpler and smoother process for all involved if global decision makers were on our side.

Blockchain technology and the cryptocurrency ideal are not the enemy here. It is the people who have abused trust and deceived their way into building billion-dollar house of cards who should pay the price.

Stefan Rust is the founder of Laguna Labs, a blockchain development house and former CEO of bitcoin.com

Updated: January 18, 2023, 04:00

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