“Shady” crypto firms see way out under new regulatory regime

Crypto companies have faced tremendous pressure to comply with and adapt to ever-changing regulations. Around 400 companies in the Baltic region faced serious consequences as a result of the tightened supervision. Faced with stricter requirements, they may have no choice but to head for the door, a new report suggests.

Many cryptocurrency companies have tried to avoid regulatory duels and stay compliant with the ever-evolving regulatory agenda. The cryptocurrency industry has been operating in a regulatory gray area for many years. Thus, it leads to increased scrutiny and enforcement actions by regulators around the world. In Estonia, internal problems in some companies came to light, prompting regulators to intervene.

Crypto companies and the regulatory climate

Cryptocurrency companies have taken countless steps to avoid a regulatory confrontation. Such as implementing robust compliance programs, performing customer and partner due diligence, and adopting anti-money laundering (AML) and know your customer (KYC) policies. They also work with regulators and industry associations to keep abreast of regulatory developments and contribute to industry best practices.

NYAG, Letitia James, Cryptocurrency Regulations, New York Attorney General

Cryptocurrencies and blockchain technology have unleashed a wave of innovation and breakthroughs. Creating new opportunities for both enterprises and investors. However, along with this growth, there has also been an increase in the number of crypto companies with dubious credentials, dodgy managers, and meaningless business plans.

These companies often show a clear lack of transparency and accountability. Even the tendency to make exaggerated claims about the potential benefits of their products or services.

What are the red flags to consider?

  1. Lack of regulation: One of the most significant risks associated with crypto companies is more regulation and supervision. Many of these companies operate in unregulated or poorly regulated jurisdictions, making it difficult for investors to assess their credentials and track records.
  2. Dodgy executives: Another common problem for crypto companies is shady executives with a history of fraud or other criminal activities. These people can use their experience and reputation to lure unsuspecting investors, only to disappear with their money when the company fails to deliver on its promises.
  3. Nonsensical business plans: Some crypto companies also have business plans that do not make sense or are based on questionable assumptions about the market or technology. For example, a company may claim to have developed a revolutionary new blockchain platform that can process millions of transactions per second, even though no evidence supports these claims.
  4. Pump and dump schemes: Another common problem in the cryptocurrency industry is pump and dump schemes, where individuals or groups artificially inflate the value of a particular cryptocurrency before selling their holdings and leaving other investors with worthless assets.
  5. Lack of transparency: Finally, many crypto companies also need more transparency and accountability, which will make it easier for investors to assess the true value of their investments. Some companies may refuse to disclose material financial information or audit reports, while others may be involved in illegal activities such as money laundering or terrorist financing.

Forced exit due to regulatory conditions?

In some cases, strict compliance requirements have accelerated the withdrawal of crypto companies or virtual asset service providers (VASPs) from a given region. A notable example is BitMEX. The cryptocurrency derivatives exchange had to close its services to customers in the United States due to increased regulatory scrutiny.

In October 2020, the Commodity Futures Trading Commission (CFTC) and Department of Justice (DOJ) filed charges against BitMEX. Claiming that the company violated multiple AML and KYC related laws. The allegations included failure to implement proper AML procedures. Allowing US customers to trade on the platform without proper KYC verification. And operating an unregistered trading platform in the US.

As a result, BitMEX was forced to close its services to US customers and implement strict measures to address regulatory issues. The company also agreed to pay a $100 million fine to settle the charges and committed to streamlining its AML and KYC procedures to avoid future violations.

Another example is the case of Binance, one of the world’s largest cryptocurrency exchanges. The company has recently come under increased scrutiny from regulators in several countries. Including UK, Japan and Thailand due to AML and KYC compliance concerns.

In both cases, the strict rules imposed by regulators had consequences. These severely impacted the ability of crypto companies or VASPs to operate in the region. As regulatory scrutiny in the crypto space continues to intensify, companies are being forced to exit. Or suspend your services to stay compliant.

The strict rules hit Estonian companies hard

According to a May 9 report, nearly 400 Virtual Asset Service Providers (VASPS) have voluntarily ceased operations or had their licenses revoked. This comes in the wake of the government’s newly enhanced anti-terrorist financing and anti-money laundering rules that came into effect in March. Several problems have been identified in local crypto companies, such as shady directors and nonsensical business plans.

Matis Mäeker said that the new law will professionalize the crypto sector.  Source: Estonian FIU
Matis Mäeker said that the new law will professionalize the crypto sector. Source: Estonian FIU

Matis Mäeker, director of the Financial Intelligence Unit (FIU), questioned the motives of these crypto companies.

“In the reports, we found a lot of suspicious circumstances on various topics. This calls into question the credibility of companies that wanted to do business here – their real desire to provide services in Estonia, or vice versa, shows the willingness of some people to use the Estonian economic and financial system for illegal activities.”

Virtual Resource Service Providers (VASPs) must follow KYC requirements and are not allowed to open anonymous accounts. The transfer rule in European markets in a crypto asset account requires exchanges to identify the entities at both ends of a crypto transaction. Fines for violations can be as high as $440,000.

Also, companies have to pay over $50,000 to set up a business and pay around $11,000 a month.

Self-analysis is the key

Regulators around the world are taking action to help investors by removing bad actors. But self-analysis is a must. Investors should take a few steps to protect themselves so as not to fall prey to these crypto companies. These can be:

  1. Due Diligence: Investors should conduct thorough due diligence before investing in any cryptocurrency or blockchain business. Mainly on the founders of the company, the management team and the business plan. They should also investigate the regulatory environment in which the company operates. As well as any potential legal or reputational risk.
  2. Portfolio Diversification: To minimize risk, investors should consider diversifying their portfolio across multiple cryptocurrencies and blockchain assets. This can help reduce the impact of individual asset performance on their overall ROI.
  3. Seek Professional Advice: Investors can also seek advice from professional financial advisors or cryptocurrency experts. They can guide the best investment strategies and help identify potential risks and opportunities.
  4. Beware of unusually high returns: As with any investment, investors should be wary of any claims of unusually high returns. Because these are often signs of fraud or other illegal activities.
  5. Staying informed: Investors should stay informed about the latest developments in the cryptocurrency industry. Including regulatory changes, technological advances and emerging trends. This can help them make informed investment decisions and avoid risks and opportunities.

In general, investors need to be careful when dealing with crypto companies and related regulations.


In line with Trust Project guidelines, this article contains the views and perspectives of industry experts or individuals. BeInCrypto is dedicated to transparent reporting, but the views expressed in this article do not necessarily reflect those of BeInCrypto or its employees. Readers should self-verify the information and consult a professional before making a decision based on this content.

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