"Cryptocurrencies are dead in the US!" What made the former bitcoin bulls turn their tune?

Chamath Palihapitiya, a well-known entrepreneur and venture capitalist and erstwhile Bitcoin long shot, seems to be a lot more cautious about cryptocurrencies than he used to be. He even stated outright in a show that aired last Saturday (22nd) that "cryptocurrencies are dead in the US."

Interestingly, Palihapitiya said two years ago that Bitcoin had replaced gold and predicted that the digital currency would climb to $200,000 in the future.

Palihapitiya's shift in attitude toward cryptocurrencies is largely blamed on regulators. The U.S. Securities and Exchange Commission (SEC) has become more aggressive in investigating bad actors in the crypto industry, which has stepped up enforcement and cracked down on companies and programs suspected of selling unregistered securities, which means cryptocurrencies.

SEC Chairman Gary Gensler said crypto trading platforms should comply with strict U.S. securities laws. Recently, Gensler also linked the collapse of Silicon Valley Bank to the crypto industry.

Palihapitiya said, "Gensler even blamed the banking crisis on cryptocurrencies, showing that the U.S. authorities have firmly turned their guns on cryptocurrencies."

A heavy handed attack on the crypto industry

In February, blockchain company Paxos said it had received a Wells Notice from the SEC. A Wells Notice is usually one of the last steps before the SEC files charges.

In March, the SEC issued a Wells Notice to cryptocurrency exchange Coinbase, warning the company of possible violations of U.S. securities laws.

Last week, the SEC charged crypto asset trading platform Bittrex and its former CEO William Shihara with operating an unregistered exchange.

Crypto Industry Fights Back

Not to be outdone by the SEC's frequent strikes, cryptocurrency trading platforms have said they will cut back on their U.S. operations or even pull out of the country.

Coinbase CEO Brian Armstrong says his company is preparing for a years-long court battle with the SEC and says it will also consider moving outside the U.S. if regulatory transparency is not improved.

Bittrex, meanwhile, has announced that it will scale back its U.S. operations due to "ongoing regulatory uncertainty.

SEC Chairman Gensler's hard-line stance has drawn similar criticism from House Republicans. Rep. Patrick McHenry, R-N.Y., chairman of the House Financial Services Committee, noted that "this enforcement regulation is not sustainable."

Palihapitiya argues in response that crypto companies may indeed be the biggest threat to existing institutions, and they do have an advantage over every other sector of the entrepreneurial economy.

Currently, Bitcoin is trading at just over $27,300, down 60 percent from its all-time high. Bitcoin had a "moment of glory" of about $69,000 in November 2021, when the Federal Reserve's benchmark interest rate was near zero and investors flocked to risky markets.