Washington's Widening Crackdown on Crypto Privacy Tools and Major Exchanges

U.S. regulators — the SEC, the DOJ, and the Treasury among them — have escalated their scrutiny of the crypto industry as it continues to grow, moving beyond the large, familiar targets to take aim at DeFi and privacy-oriented services as well. Enforcement actions had previously focused on major companies such as Binance, Kraken, Coinbase, and Ripple, but recent, more aggressive moves appear aimed at stripping away crypto's remaining pseudonymity. Some in the industry are digging in to defend that privacy; others have opted to shut down operations rather than continue operating under mounting legal risk.

01An Escalating Fight With the SEC

The industry's running battle with the SEC shows no sign of slowing, particularly with Chair Gary Gensler, who has recently described crypto as an "outsized piece of the scams and frauds and problems in our markets." The agency's list of targets has grown to include Ripple, Binance, Kraken, Coinbase, Uniswap, Consensys, and Robinhood, signaling an expansion into DeFi. On May 9th, the SEC unexpectedly delayed the NYSE listing of Exodus stock, despite having already approved it.

Regulatory pressure is coming from Congress too. Senator Elizabeth Warren has targeted the crypto industry since 2022, and her ongoing push for the Digital Asset Anti-Money Laundering Act is thought to have influenced some of the DOJ's recent moves.

02The DOJ Turns Up the Heat

In March, the DOJ indicted the crypto exchange KuCoin along with its founders, alleging violations of the Bank Secrecy Act and the operation of an unlicensed money-transmitting business. In late April, the DOJ carried out a high-profile arrest in Spain of early Bitcoin investor Roger Ver, known as "Bitcoin Jesus," on tax evasion and fraud allegations dating back seven years — coming shortly after Ver published Hijacking Bitcoin: The Hidden History of BTC, a book critical of Bitcoin's centralization.

Crypto mixers have drawn particular attention, having been labeled money-laundering hubs by the U.S. Treasury. The DOJ charged Tornado Cash co-founders Roman Storm and Roman Semenov with money laundering and sanctions violations back in August 2023, and at the end of April, opposed Storm's bid to dismiss several of the charges against him; his trial is now scheduled for September.

In a related but legally separate case, Tornado Cash developer Alexey Pertsev was sentenced to 64 months in prison in mid-May after a Dutch court convicted him of money laundering. Prosecutors argued that his specific coding decisions had enabled criminal activity, with the ruling citing FATF despite that body's lack of formal regulatory authority or democratic accountability. The verdict raises the possibility that open-source developers could be held liable when criminals misuse non-custodial software, and some observers see it as a signal for how Storm's own case might ultimately be decided.

Samourai Wallet's co-founders were also charged by the DOJ for running an unlicensed money-transmitting business, allegedly tied to $2 billion in unlawful transactions and over $100 million laundered. The case has been assigned to Judge Richard M. Berman, previously known for upholding random subway bag searches as constitutional in 2005. Storm, for his part, argues that his U.S.-based company simply built software to provide financial privacy for legitimate users. Together, the Tornado Cash and Samourai prosecutions suggest the DOJ intends to treat crypto mixers broadly as unlicensed money transmitters, potentially opening the door to further enforcement across the sector.

Congress has joined in as well: Representative Sean Casten introduced the Blockchain Integrity Act on May 6th, which would impose a two-year ban on institutions handling funds routed through mixers. (For a running summary of crypto legal cases organized by agency, see the Crypto Litigation Tracker.)

03A Wave of Shutdowns

Within roughly a week, three crypto projects pulled out of the U.S. market, and one shut down entirely. On April 26th, Paris-based Bitcoin firm Acinq announced it was removing its Lightning wallet, Phoenix, from U.S. app stores, citing regulatory uncertainty. The next day, Wasabi Wallet's developer, ZKSnacks, announced it would preemptively shut down its coin-mixing service and bar U.S. customers. On May 2nd, hardware wallet maker Trezor said its Coinjoin mixing service for U.S. customers would end by June 1st, 2024. Then, on May 6th, LocalMonero announced it would wind down its entire platform over the following six months, citing a mix of internal and external pressures.

04Uneven Enforcement?

Despite the large number of licensed crypto firms, only Prometheum Ember Capital has so far obtained the SEC's new broker-dealer license for custodying and trading "crypto asset securities." The SEC's record elsewhere is mixed: it approved the first crypto-linked ETF not directly tied to equities back in 2021 — the ProShares Bitcoin Strategy ETF (BITO) — and allowed spot Bitcoin ETFs to begin trading this past January, per the same rule filing. Outside of those approvals, the agency has filed at least one lawsuit a month against crypto firms since November, with most resolved through settlements.

Critics argue the SEC's enforcement process lacks due process, and Republican lawmakers have introduced bills aimed at curbing the agency's authority. Congress voted to overturn SEC guidance known as SAB 121 — which critics say discourages banks from engaging with crypto — though President Biden has said he would veto that resolution.

The SEC has faced its own legal headwinds in recent years: in 2018, the Supreme Court's conservative justices questioned the constitutionality of how the agency selects its in-house judges, and a 2023 ruling made it easier to challenge SEC actions in ordinary federal court. Critics contend the SEC has an inherent advantage when it litigates "administrative proceedings" before its own judges rather than before juries; last fiscal year alone, the agency pursued 270 cases in-house compared with 231 in federal court.

With 2024 shaping up as a pivotal U.S. election year, including the presidential race, a growing number of politicians are staking out positions on cryptocurrency policy. Ultimately, it will fall to lawmakers to craft legislation addressing both the risks and the opportunities the digital-asset industry presents — and a slow-moving regulatory response risks costing the U.S. its competitive edge as the global crypto landscape continues to evolve.

05Broader Concerns Over Privacy

The current wave of enforcement, in the view of privacy advocates, threatens more than individual companies — it touches on the broader right to financial privacy. Critics point out that other industries whose products can be misused, such as automakers or firearms manufacturers, are not typically held criminally liable for how customers use them, and question why privacy-preserving crypto tools are being treated differently — with some comparing the prosecution of open-source developers to historical crackdowns on the free circulation of information. Officials frame the effort as targeting terrorism, trafficking, and drug dealing, but critics counter that its real aim is tighter oversight of money flows relative to the traditional financial system.

Advocates for these tools argue that blockchain technology emerged specifically to offer an alternative to fiat-based finance without sacrificing financial privacy, noting that the traditional system's own KYC requirements have contributed to major data-breach exposure — more than 5 billion records compromised across over 2,000 publicly disclosed incidents in 2024 alone. By comparison, they note that crypto's hacks and exploits pale next to the scale of illicit activity in legacy finance, where an estimated $3.1 trillion in illicit funds moved through the traditional system last year alone.

Whether self-custody and privacy tools remain viable options for the industry going forward remains uncertain, but the current fight is being framed by many in the space as a defining moment for how much financial privacy crypto users will retain.