State of US’ crypto regulations, more hacks and rug pulls as PEPE leads the meme coin charge | Weekly recap

Following a calm week, there were more regulatory actions, especially in the United States. Meanwhile, more hacks and rug-pull spilled over from the previous week. The buzz surrounding meme coins, fueled by the success of PEPE, created an opening for malicious actors who sought to exploit investor enthusiasm.

Crypto mining regulations

On May 3, the Joe Biden administration resurrected the proposal to impose a 30% tax on crypto mining.

It is worth noting that this bill was initially brought to public attention in March 2023 but was vehemently opposed by the broader cryptocurrency community. According to the White House, the “Digital Assets Mining Excise Tax (DAME Tax)” will hold crypto miners accountable for the costs they impose on others.

In response, environmental lawyer Robert Kennedy opposed the tax policy, arguing that it was “a bad idea”. Kennedy alleged that the campaign against crypto mining is influenced by a desire to stifle any innovation that threatens the elite’s power structure. He pointed out that bitcoin (BTC) mining uses the same energy as video games. Still, there have been concerns regarding the latter.

While the federal government sought to discourage crypto mining, this week, the state of Montana encouraged mining. On May 5, Greg Gianforte, the governor of Montana, signed into law a bill that seeks to prohibit municipalities within the state from outlawing bitcoin mining.

SEC troubles 

The United States Securities and Exchange Commission (SEC) finalized its newly-introduced Form PF rules on the same day. However, it left out a formal approval of a clear definition for digital assets. The previous version of the Form PF proposal included an explanation for digital assets. 

The exclusion in the final rule is being discussed with crypto proponents saying it makes worse the current state of lack of regulatory clarity that is slowing down investment and participation in the United States. This SEC decision could pave the way for further enforcement actions.

This week saw a case in point: Oliver Linch, CEO of Bittrex Global, expressed his disappointment over the SEC’s recent decision to issue a Wells Notice to the exchange. Linch revealed that there had been no prior communication from the agency regarding their compliance with regulations.

Coinbase also made headlines this week, as it saw a favorable development in its lawsuit against the SEC over regulatory uncertainty. The Third Circuit Court of Appeals demanded that the SEC provide a reason behind its refusal to respond to a petition requesting clear regulations in the crypto industry. The petition was filed last year but was rebuffed by the SEC. 

North Carolina opposes CBDC; New York looks to provide clarity

This week, North Carolina’s state expressed opposition to payments in Central Bank Digital Currency (CBDC). Dan Spuller, the co-chair of the North Carolina Blockchain Initiative, disclosed on May 4 that the state lawmakers passed a bill prohibiting using CBDC as payment to the state.

Influenced by the growing concerns surrounding the regulatory trajectory in the United States, New York Attorney General (NYAG) Letitia James introduced legislation for the crypto industry in the state. The legislation provides a framework for other states to follow, further help protect investors, and stifle fraud through “commonsense measures.”

More enforcement actions in the US

Last week, the SEC imposed $4m in fines on crypto exchange CoinMe. It alleges that the ramp and its executives offered unregistered securities and misrepresented its native asset, UpToken (UP).

In a separate development, Delaware-based crypto exchange Poloniex agreed to pay up to $7.59m in penalties to the U.S. Treasury. The Treasury’s Office of Foreign Asset Control (OFAC) had fined Poloniex for violating sanctions against several countries, including Sudan, Iran, Crimea, and Syria. Users in these countries had allegedly leveraged Poloniex for crypto transactions worth $15m between January 2014 and November 2019.

On May 6, reports emerged that Binance was under investigation by the United States Department of Justice (DoJ) for possible violations of the economic and financial sanctions imposed on Russia. Though unverified, sources claim the investigation aims to determine whether Binance allowed Russians to move money through the exchange despite existing sanctions.

This week, Nathaniel Chastain, a former executive at leading non-fungible token (NFT) marketplace OpenSea, was found guilty of the insider trading charges brought against him by the DoJ in June 2022. Chastain, who pleaded not guilty to the charges, was convicted on May 3.

The Federal Bureau of Investigation (FBI) also took center stage, having seized nine crypto exchanges, including 100btc.pro, 24xbtc.com, uxbtc.com,pridechange.com, among others. The agency alleged that the platforms were being used for money laundering schemes.

The regulatory climate in the UK

The UK disclosed plans to ban cold calls promoting crypto products. Companies or individuals make these calls to advertise or promote products to consumers who have yet to register prior interest in the products.

Unscrupulous individuals have leveraged this medium to promote scam schemes and defraud unsuspecting victims. The region plans to hire 400 people to implement its new strategy against the vice, further partnering with telecommunications firms.

These reports came up shortly after Lisa Cameron, a Member of Parliament (MP) of the UK, highlighted the need for proper crypto regulations in the country. Speaking at the CoinDesk 2023 Consensus in Austin, Texas, Cameron disclosed that she owns no cryptocurrencies to be objective when contributing to digital asset regulations.

Meanwhile, the UK Financial Conduct Authority aims to ensure sanity within the crypto scene through a crackdown on illegal crypto ATM operators. On May 5, the FCA said crypto ATMs operating in the country without licenses are illegal, disclosing that it continues to raid operators suspected of hosting these machines.

Hacks and rug pulls continue

Level Finance, a decentralized exchange on the BNB Smart Chain (BSC), was hacked and lost $1m on May 1.

In a follow-up on May 4, Certik, a blockchain security company, disclosed that it had frozen $160,000 worth of the assets stolen from MerlinDEX. The Merlin hack resulted in the loss of $2m in investor funds. Certik confirmed that the hack was a rug pull engineered by an insider.

DEUS, a decentralized finance (DeFi) protocol, also lost nearly $6m of DEI, its proprietary stablecoin. On-chain data uncovered by PeckShield suggested that the assets stolen were hosted on the Arbitrum network and BSC.

In addition to hacks, there were several rug pulls as attackers took advantage of the PEPE meme coin. Wall Street Bets (WSB) meme coin declined by as much following reports that an insider had sold tokens reserved for the team.

On May 3, there was a rug pull on XIRTAM, a new decentralized educational resource. The platform’s team made away with up to $3.5m raised during pre-sale. Binance reportedly froze the assets after the founder moved them to the exchange.

Meme mania drives PEPE to record highs

PEPE has been at the forefront of the meme coin buzz due to its unexpected success. The asset retained its position as one of the most discussed assets in the crypto community as its market cap inched closer to $500m as of May 2.

Amid this development, PEPE towered over the two most prominent meme assets, dogecoin (DOGE) and shiba inu (SHIB), in trading volumes on May 3. The asset’s 24-hour trading volume skyrocketed to $260m. 

Data from CoinGecko indicates that trading volume surged to $419m on May 5 and crossed the $1b mark, rising to as high as $1.67b on May 6. This represented the third largest 24-hour trading volume for any non-stablecoin on May 6, behind bitcoin’s and ethereum’s trading volumes.

The buzz resulted in multiple listings on several exchanges, including on Binance, which announced that it would list the asset on May 5 along with floki inu (FLOKI), another meme coin. Binance also enabled perpetual futures trading for PEPE on the same day.
With the growing excitement surrounding meme coins, CoinGecko released a report detailing the countries most interested in these assets.

The study found that the United States and India show the greatest interest, respectively commanding 23.58% and 20.31% of the total meme coin views on the price-tracking platform.