Analysis: Is the US Softening Its Stance on Cryptocurrency?
On Friday, the US Treasury Department announced the removal of sanctions placed on the infamous crypto mixer Tornado Cash, previously implicated in laundering vast sums of illicit cryptocurrency for various criminals and state actors. In 2022, the Biden administration accused Tornado Cash of facilitating the laundering of over $7 billion in digital assets since its inception in 2019, which included $455 million linked to North Korea’s Lazarus Group, prompting the imposition of sanctions that banned its use. In 2023, US prosecutors charged two founders of Tornado Cash, accusing the platform of enabling the movement of more than $1 billion in illegal funds. However, a federal appeals court ruling in November raised questions about the Treasury’s authority to sanction the smart contracts of the mixer, asserting they did not qualify as “property” belonging to any foreign individual. As a result, the sanctions have now been lifted, although officials continue to express unease regarding potential misuse of the platform. “We remain exceedingly concerned about the extensive state-sponsored hacking and money laundering operations aimed at acquiring and deploying digital assets for the Democratic People’s Republic of Korea (DPRK) and its leadership,” the Treasury stated. “We are committed to leveraging our powers to expose and disrupt the capacity of malevolent cyber actors to benefit from their illegal activities through the exploitation of digital assets and the broader ecosystem. The Treasury will persist in monitoring transactions that could aid such actors or the DPRK, urging US citizens to exercise caution when engaging in potentially risky transactions.”
Understanding Cryptocurrency Mixers
Cryptocurrency mixers are platforms designed to blend transactions from various users to obscure the origin and destination of funds, thereby enhancing privacy while also raising concerns about facilitating money laundering activities. Tornado Cash, which was launched in 2019 as an open-source mixer for Ethereum, aimed to bolster transaction privacy but was also misused by criminal entities for illegal activities. One of its developers, Alexey Pertsev, was detained by Dutch authorities in 2022 and was later convicted on money laundering charges in 2024, receiving a sentence of 64 months, which he is currently appealing. In August 2023, US officials charged Tornado Cash co-founders Roman Storm and Roman Semenov with various offenses, including conspiracy to commit money laundering and violations of sanctions. Storm was apprehended and is contesting his charges, while Semenov remains at large and is currently on the FBI’s wanted list.
The Digital Future of America
The Treasury’s recent decision to lift sanctions on Tornado Cash reflects a broader evolution in the current administration’s strategy regarding digital currency regulation. On March 21, the Securities and Exchange Commission’s (SEC) Crypto Task Force conducted a public roundtable aimed at examining how existing securities regulations apply to digital assets and to explore the establishment of a new regulatory framework that caters to these technologies. This roundtable follows a notable week in the cryptocurrency realm for the SEC. On March 19, the SEC withdrew its appeal in a protracted five-year legal dispute against Ripple Labs, the supplier of the XRP token, alongside two of its top executives, co-founder Christian Larsen and CEO Bradley Garlinghouse. “This is the moment we’ve been anticipating. The SEC has dropped its appeal—a significant win for Ripple and for the entire crypto sector,” Garlinghouse remarked on social media. “The future looks promising. Let’s get to work.” Just weeks prior, Garlinghouse had met with former President Trump to discuss the trajectory of cryptocurrency and its regulatory landscape, a meeting that followed his reported $5 million donation to Trump’s inaugural committee. In the 2020 case, the SEC claimed that Ripple Labs raised approximately $1.3 billion through unregistered sales of XRP, breaching federal securities laws. A court ruling in July 2023 determined that XRP sales on public platforms did not constitute securities transactions, although Ripple’s direct sales to institutional investors did fall under that classification. Following the SEC’s withdrawal of its appeal last week, XRP’s price surged by over 10 percent. The SEC subsequently clarified that activities related to proof-of-work cryptocurrency mining do not involve the offering or sale of securities, thereby falling outside the agency’s jurisdiction. “The Division asserts that ‘Mining Activities’ in connection with Protocol Mining, as described, do not constitute the offer and sale of securities under the Securities Act of 1933 and the Securities Exchange Act of 1934,” it stated. “As such, participants in Mining Activities are not required to register transactions with the SEC under the Securities Act or adhere to any exemptions related to these activities.”
A Bipartisan Issue
The topic of cryptocurrency regulation has captured the attention of lawmakers, with a bipartisan group of senators recently updating pending legislation known as the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, which has passed through the US Senate Banking Committee. Introduced in February, the GENIUS Act aims to clarify legal standards surrounding stablecoins—digital currencies pegged to traditional assets like the US dollar. The legislation seeks to ensure that stablecoin issuers comply with anti-money laundering regulations, are backed by tangible assets, and undergo routine audits and public disclosures to promote transparency and consumer safety. “The revised GENIUS Act introduces significant enhancements to critical components such as consumer protections, authorized stablecoin issuers, risk mitigation strategies, state pathways, insolvency issues, transparency, and more,” remarked co-sponsor Senator Kirsten Gillibrand (D-NY). Gillibrand’s support is echoed by other Democratic lawmakers, and the bill will likely require at least 60 votes to pass with bipartisan backing. However, the committee’s ranking member, Senator Elizabeth Warren (D-MA), expressed her discontent with the bill’s provisions. “This legislation overlooks fundamental consumer protections that are standard for other financial products in the US. If you send a US dollar from your PayPal wallet and fall victim to fraud, the CFPB can assist you in recovering your funds. But if this bill is enacted and you send a stablecoin from your PayPal wallet and get scammed, you might be out of luck,” she stated. “In fact, the bill even allows individuals with prior fraud and money laundering convictions to enter the stablecoin market. A person like Sam Bankman-Fried could potentially acquire a stablecoin company from prison, and under this bill, regulators would lack the authority to intervene.” While the House of Representatives has yet to address this legislation, the strong bipartisan support for stablecoin regulation indicates it may receive a positive reception once it is introduced.
