How Effective Is The Federal Trade Commission In Going After Scalawags In The Crypto Space?

The United States, in its bid to navigate the complex and rapidly evolving landscape of cryptocurrencies, has increasingly adopted a strategy of “regulation by enforcement.” This approach, characterized by taking legal actions post-factum rather than setting clear regulatory guidelines upfront, has been both lauded and criticized. The Securities and Exchange Commission (SEC), a key player in this arena, has been at the forefront, scrutinizing Initial Coin Offerings (ICOs) and taking a stance that many crypto tokens may qualify as securities. Their approach, while aiming to protect investors, has also been viewed by some as stifling innovation.

Parallelly, the Federal Trade Commission (FTC) has been actively involved, focusing on consumer protection in the crypto domain. As the crypto ecosystem strives to strike a balance between innovation and regulation, the roles of agencies like the SEC and FTC become increasingly pivotal. This Cryptopolitan guide delves into the FTC’s effectiveness in the crypto space, set against the backdrop of the broader U.S. Regulatory landscape, and explores the implications for stakeholders and the global economy.

What is the FTC?

The Federal Trade Commission (FTC) stands as an autonomous, bipartisan entity within the U.S. government, dedicated to safeguarding consumers and promoting a robust competitive marketplace. Currently, Lina Khan presides as the Chair of the FTC.

At its core, the FTC’s mission revolves around the enforcement of non-criminal antitrust laws in the U.S., aiming to curb and eradicate business practices that stifle competition, such as oppressive monopolies. Furthermore, the FTC is vigilant against deceptive or exploitative business conduct, ensuring consumers remain protected. Founded in 1914 through the Federal Trade Commission Act, the FTC emerged during the Wilson administration’s era of trust-busting—a prominent issue of that period.

The FTC’s inception was to uphold the Clayton Act, a legislation that prohibited monopolistic behaviors. However, before the FTC’s establishment, the Bureau of Corporations existed. Initiated by the Roosevelt administration in February 1903, this Bureau, under the Department of Commerce and Labor, was charged with ensuring businesses operated in alignment with the public’s best interests. The accomplishments of the Bureau of Corporations paved the way for the FTC’s formation.

Today, the FTC, through its Bureau of Competition, remains vigilant against anti-competitive actions. In collaboration with the Department of Justice (DOJ), it scrutinizes potential mergers. Over the decades, the FTC’s responsibilities have expanded, now overseeing various business regulations as outlined in Title 16 of the Code of Federal Regulations.

Over the years, the FTC’s jurisdiction has expanded to include various sectors, and with the rise of cryptocurrencies, it has turned its attention to the crypto space.

How effective is the FTC in maintaining order in the crypto space?

The FTC has been proactive in its approach to the crypto space. It has issued warnings about potential scams, taken action against fraudulent ICOs (Initial Coin Offerings), and educated the public about the risks associated with cryptocurrencies.

This year, the Federal Trade Commission (FTC) collaborated with the Securities Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to level charges and declared settlements against the now-insolvent crypto platform, Celsius Network. Concurrently, the FTC, SEC, CFTC, and Department of Justice initiated legal proceedings against the firm’s co-founder and ex-CEO, Alex Mashinsky. Additionally, the FTC named the company’s other co-founders, Shlomi Leon, and Hanoch Goldstein, as defendants. As anticipated last year, the FTC is leveraging its expansive powers to oversee purportedly misleading or unfair crypto activities, irrespective of a token’s regulatory classification.

Though the SEC has been the most proactive in targeting crypto enterprises, the FTC’s move against Celsius signifies its most significant venture into crypto regulation. On July 13, 2023, the FTC lodged its complaint in the United States District Court for the Southern District of New York. They alleged that Celsius’s inability to safeguard consumer assets and purported false claims breached the FTC Act and the Gramm-Leach-Bliley Act (GLBA). The FTC’s accusations highlight Celsius’s alleged contraventions of the Federal Trade Commission Act’s Section 5, including claims of insufficient liquid assets, lack of insurance on consumer deposits, and misleading lending practices.

Interestingly, the FTC’s GLBA claim is based on the premise that Celsius used these purported false claims to access consumers’ banking and crypto wallet details. The FTC believes it can secure financial redress for such GLBA breaches, as evidenced by the (deferred) judgment of $4.72 billion. This stance is pivotal for financial entities, as the FTC typically only seeks injunctive relief under its Section 5 authority. However, they believe the GLBA allows for financial penalties. In this instance, while Celsius consented to the financial penalty and injunctive relief, the monetary settlement is on hold due to the company’s concurrent bankruptcy proceedings, prioritizing creditor repayment.

As crypto and digital asset firms grapple with potential regulatory scrutiny, the FTC’s actions against Celsius and its leadership underscore the presence of another vigilant agency. Given the FTC’s ability to act without categorizing a token’s regulatory status, it wields significant influence in financial services. Companies pioneering in crypto, digital assets, and Web3 should keenly observe the FTC’s settlements, ongoing legal battles, and innovative GLBA interpretations.

However, the decentralized nature of cryptocurrencies poses unique challenges. While the FTC has successfully shut down several high-profile scams, many believe that for every scam that’s caught, several others go unnoticed. The global nature of the crypto market also means that many fraudulent actors operate outside the FTC’s jurisdiction, making enforcement difficult.

What’s FTC’s importance, and why is vigilance needed?

The crypto space is still in its infancy, and many potential investors lack the knowledge to differentiate between legitimate opportunities and scams. The FTC plays a crucial role in protecting these investors. By taking action against fraudulent activities, the FTC not only safeguards individual investors but also maintains the integrity of the crypto market.

Vigilance is needed because the crypto space is evolving rapidly. New coins, platforms, and technologies emerge regularly, each bringing its own set of challenges. Without a vigilant watchdog, the risk of scams and fraudulent activities would skyrocket, undermining public trust in the crypto ecosystem.

What are the implications for investors and crypto startup founders?

For Investors: The actions of the FTC provide a safety net. While it’s essential for investors to do their due diligence, knowing that there’s an agency looking out for deceptive practices offers an added layer of security. However, over-reliance on the FTC can be dangerous. Investors must remain proactive in educating themselves.

For Crypto Startup Founders: The FTC’s involvement means that startups need to be transparent, honest, and compliant with regulations. While this might seem burdensome, in the long run, it benefits startups by creating a more trustworthy environment, attracting more investors, and ensuring long-term viability.

What are the implications for crypto and the global economy?

The crypto market has the potential to revolutionize the global economy. It can offer faster transactions, reduce costs, and provide financial services to those previously unbanked. However, for crypto to reach its full potential, it needs to be trustworthy.

The FTC’s involvement ensures that the crypto space doesn’t become a “wild west” of scams and frauds. By maintaining order, the FTC paves the way for crypto’s integration into the global economy, which could lead to increased economic growth, innovation, and financial inclusivity.

Regulation By Enforcement

For those keenly observing the discourse on crypto governance, the term “regulation by enforcement” is undoubtedly familiar.

A recent pivotal moment emerged with the Securities and Exchange Commission’s legal action accusing a Coinbase employee of insider trading. The SEC’s bold claim that nine out of the 25 cryptocurrencies implicated in the purported insider activity are securities could set a precedent for the sector. This assertion, embedded within the lawsuit, has led to outcries from Coinbase, a prominent U.S. senator, and even other federal regulatory bodies, suggesting that the SEC is leaning heavily on enforcement as a form of regulation.

The core of these grievances is a call for clearer guidelines. James Park, a law professor at UCLA specializing in securities regulation, commented, “The underlying sentiment is that the SEC isn’t offering clear directives on specific matters.” He added, “Rather than introducing regulations that offer clear guidance and forewarn the industry, the SEC seems to be opting for enforcement actions. These actions interpret vague statutory terms, shaping the law on a case-by-case basis.”

Crypto influencers’ opinion on the FTC – are they effective or not?

The agency responsible for ensuring honesty in advertising is probing whether certain companies engaged in misleading or deceptive ad campaigns.

When approached for a statement, an FTC representative communicated, stating, “We cannot discuss the current happenings in the crypto markets or specifics of potential ongoing probes. However, we are examining several companies for potential malpractices related to digital assets.”

This update follows a report from Bloomberg roughly two weeks prior, which highlighted that celebrities who had endorsed the now-defunct crypto exchange FTX were facing a minimum of three legal challenges from individuals seeking to recoup their investments.

Should the legal actions move forward, celebrities who championed the company might be held accountable for any resultant damages, particularly if the promoted products are deemed securities.

The legal actions argue that such celebrity endorsements attracted naive investors.

In a related event about two months earlier, Kim Kardashian consented to settle a $1.26 million penalty in a case centered around her promotion of the EthereumMax cryptocurrency. The Securities and Exchange Commission (SEC) classifies it as a security under their purview. Kardashian had failed to adequately disclose that she had been financially compensated for her endorsement.

Several crypto influencers have voiced their opinions on the FTC’s role in the crypto space:

  • Vitalik Buterin, co-founder of Ethereum, has mentioned in interviews the importance of regulatory bodies in ensuring the crypto space’s legitimacy. While he advocates for decentralization, he acknowledges the role of agencies like the FTC in protecting consumers.
  • Andreas M. Antonopoulos, a well-known Bitcoin advocate, has a more skeptical view. He believes that while the FTC has good intentions, the rapidly evolving nature of crypto might make it challenging for any regulatory body to keep up effectively.
  • Caitlin Long, founder of Avanti Bank & Trust, has praised the FTC’s efforts in educating the public about crypto risks. She believes that a balance between regulation and innovation is crucial for the crypto space’s growth.


In market economies, industry leaders naturally aim for monopolistic positions, often to the detriment of consumers and competitors. This led to the creation of antitrust laws during Theodore Roosevelt’s era, positioning the U.S. government as a guardian of market competition. In the crypto world, while the foundational principles emphasize decentralization, the reality often leans towards centralization. This dichotomy results in debates over interoperability, trademarks, and marketplace restrictions.

Despite these challenges, many in the crypto community hesitate to engage with government agencies like the FTC. This reluctance stems from a libertarian perspective favoring minimal government intervention. However, given the government’s evident influence on the industry, it’s essential to recognize and constructively engage with this power.

The current crypto lobbying efforts, primarily backed by profit-driven crypto companies and venture capitalists, might be another reason for the limited engagement with antitrust policies. A shift in the funding model, perhaps towards decentralized autonomous organizations, could dilute the influence of dominant players. Alternatively, representative bodies could redefine their priorities and collaborations to better serve the broader community.


What is the primary role of the FTC in the crypto space?

The Federal Trade Commission (FTC) aims to protect consumers in the crypto space by enforcing regulations against deceptive practices, fraudulent Initial Coin Offerings (ICOs), and scams, while also providing educational resources about potential risks associated with cryptocurrencies.

How effective has the FTC been in regulating the crypto space?

The FTC has demonstrated proactiveness by issuing warnings about potential scams, taking legal actions against fraudulent ICOs, and educating the public. However, the decentralized and global nature of cryptocurrencies poses challenges, allowing some fraudulent activities to go unnoticed or operate outside the FTC's jurisdiction.

Why is the FTC's vigilance crucial in the crypto market?

Vigilance from the FTC is vital to safeguard investors from scams and deceptive practices, ensuring the integrity of the crypto market. The rapid evolution of the crypto space, with new coins and technologies, necessitates a watchdog to prevent it from becoming a hub of fraudulent activities and to maintain public trust.

What does the FTC’s involvement mean for investors and crypto startup founders?

For investors, the FTC provides a safety layer, although they must still perform due diligence and educate themselves. For crypto startup founders, adherence to transparency and compliance with regulations is crucial to avoid punitive actions from the FTC and to build a trustworthy environment for their operations.

How does the FTC's role impact the global economy and the crypto space?

By ensuring order and trustworthiness in the crypto space, the FTC facilitates the integration of cryptocurrencies into the global economy, potentially leading to enhanced economic growth, innovation, and financial inclusivity. The regulatory actions of the FTC help prevent the crypto market from becoming a chaotic environment, thus aiding in its sustainable development.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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