In the Office of the Comptroller of the Currency’s annual report, released January 5, acting comptroller Michael Hsu listed concerns about cryptocurrency and said that “Crypto industry risk management practices lack maturity, stablecoins may be unstable, and contagion risk is high within the crypto industry.” In discussing his agency’s work on cryptocurrency with the Federal Reserve and FDIC, Hsu said, “the lessons we learned from this interagency work reinforced the careful, deliberative, and cautious approach the OCC has taken to supervising crypto-asset activities in the federal banking system. In November 2021, we issued an interpretive letter that clarified banks should not engage in certain crypto activities until they demonstrate that the activities can be conducted in a safe and sound manner.28 This approach helped mitigate the risk of contagion from crypto losses and bankruptcies to the federal banking system.”

On January 4 the SEC charged the creator of a fraudulent investment scheme called CoinDeal, as well as seven other people, for their involvement in a scheme that generated $45 million in sales of unregistered securities. The scheme took place from at least January 2019 to 2022, and the SEC alleges that the group made false claims about access to blockchain and the likelihood of investment returns.

The Federal Reserve, FDIC, and OCC issued a new warning on January 3 expressing concerns with the cryptocurrency industry. In the statement the agencies said, “The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector. These events highlight a number of key risks associated with crypto-assets and crypto-asset sector participants that banking organizations should be aware of.” They added, “It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system. The agencies are supervising banking organizations that may be exposed to risks stemming from the crypto-asset sector and carefully reviewing any proposals from banking organizations to engage in activities that involve crypto-assets...Given the significant risks highlighted by recent failures of several large crypto-asset companies, the agencies continue to take a careful and cautious approach.”

On December 23 the Internal Revenue Service announced that it would be delaying requirements that crypto brokers report transactions involving digital assets. The new rules, signed into law as part of the bipartisan infrastructure bill in 2021, now will not take effect until the agency carries out its normal rulemaking procedure for this matter. The rules were supposed to take effect in the 2023 tax filing year, but the agency has not yet published a definition of the term “broker.”

Bloomberg published an article on December 22 titled “All The Ways That Crypto Broke in 2022.” The article closes by asking, “Is there a fix for all the ways crypto broke in 2022? Skeptics and fans alike expect more rules and more regulations, especially in the realm of consumer protection. For some, it will be too little too late.”

The Securities and Exchange Commission issued letters to U.S. public companies on December 8 that they should disclose to investors any damage they have incurred due to recent distress in the cryptocurrency industry. The letter from the SEC Division of Corporation Finance says, “Recent bankruptcies and financial distress among crypto asset market participants have caused widespread disruption in those markets. Companies may have disclosure obligations under the federal securities laws related to the direct or indirect impact that these events and collateral events have had or may have on their business.”

According to Reuters, the Department of Justice is considering charging Binance and its executives for possible money laundering violations. A spokesperson for Binance refuted the report and said, “As has been reported widely, regulators are doing a sweeping review of every crypto company against many of the same issues. This nascent industry has grown quickly and Binance has shown its commitment to security and compliance through large investments in our team as well as the tools and technology we use to detect and deter illicit activity.”

On December 16 the Financial Stability Oversight Council approved its 2022 annual report. The report includes recommendations related to digital assets. In its announcement of the report, FSOC said, “The Council emphasizes the importance of agencies continuing to enforce existing rules and regulations applicable to the crypto-asset ecosystem. The Council has also identified gaps in the regulation of digital asset activities. To address these gaps, the Council recommends the enactment of legislation providing for rulemaking authority for federal financial regulators over the spot market for crypto-assets that are not securities. Steps should be taken to address regulatory arbitrage, since crypto-asset entities offer services similar to traditional financial institutions but do not have a consistent or comprehensive regulatory framework. An assessment should be made of whether vertically integrated market structures can or should be accommodated under existing laws and regulations. Finally, the Council recommends that Council members continue to build capacities related to data and the analysis, monitoring, supervision, and regulation of digital asset activities.”

The Wall Street Journal reported that the Securities and Exchange Commission is increasing its scrutiny of cryptocurrency company audits. SEC Acting Chief Accountant Paul Munter said that “Investors should not place too much confidence in the mere fact a company says it’s got a proof-of-reserves from an audit firm” and that having such a report “is not enough information for an investor to assess whether the company has sufficient assets to cover its liabilities.”