Crypto Markets Face Regulatory Shakeup Amid Price Plunge

The world of digital assets is never short on drama, and the past two weeks have proven this in spades. From Washington, D.C. to Dubai, the cryptocurrency sector has been buffeted by regulatory crosswinds, massive market swings, and a flurry of enforcement actions that have left both investors and industry insiders scrambling to keep up. Yet, amid the turbulence, some signals point to a cautious—if uneasy—stability in the underlying infrastructure of crypto markets.

Let’s start in the U.S. capital, where lawmakers took a historic step on January 29, 2026. According to Lowenstein Crypto, the Senate Agriculture Committee advanced a cryptocurrency market structure bill that would grant the Commodity Futures Trading Commission (CFTC) regulatory authority over digital commodities. Committee Chairman John Boozman, R-Ark., pressed forward with this legislation, even after losing bipartisan support that had previously been painstakingly built with Sen. Cory Booker, D-N.J. The vote split along party lines, highlighting the contentious nature of crypto regulation in Congress. While this marks the first time any crypto market structure bill has cleared a Senate committee, the journey is far from over. The Senate Banking Committee must still approve its own version, and only then can lawmakers hope to reconcile the proposals and move the legislation to the Senate floor.

Regulatory wrangling didn’t stop there. Just days later, on February 2, 2026, executives from Coinbase, crypto trade groups, and banking associations huddled with White House officials to hash out differences over stablecoin reward provisions—a sticking point that had previously derailed the Senate Banking Committee’s efforts. According to media reports cited by Lowenstein Crypto, the White House gave both sides a deadline: come to an agreement by the end of February. The clock is ticking, and the stakes are high for the future of stablecoins in the U.S. financial system.

Meanwhile, the Securities and Exchange Commission (SEC) made waves on February 4, 2026, by dismissing proceedings against American CryptoFed DAO LLC. The case, which originated in November 2021, centered on a disputed Form S-1 registration statement related to a stablecoin and governance token. In its order, the SEC acknowledged, “much has changed about the regulation of crypto assets since these events, including on topics that could affect a company’s decision on whether or how to file registration statements concerning crypto assets.” The agency pointed to the enactment of the GENIUS Act, a supportive executive order on blockchain and digital assets, and SEC Chairman Paul Atkins’ recent calls for clearer market guidelines. For many in the industry, this dismissal signals a more nuanced approach from the SEC as the regulatory landscape evolves.

But U.S. regulators weren’t the only ones making headlines. On January 30, 2026, the Office of Foreign Assets Control (OFAC) sanctioned two UK-registered crypto exchanges—Zedcex Exchange Ltd. and Zedxion Exchange Ltd.—for their connections to a sanctioned Iranian businessman and for providing material support to the Iranian Revolutionary Guard Corps. This marked the first use of Iran-specific financial institution sanctions on crypto exchanges, underscoring the sector’s growing importance in global financial enforcement. According to the official press release, both exchanges were designated not only for operating in the financial sector but also for materially assisting, sponsoring, or providing support to the IRGC.

Back on U.S. soil, the CFTC made a notable policy pivot on February 4, 2026. The agency withdrew its proposed rulemaking on “Event Contracts” from June 2024 and rescinded Staff Advisory 25-36 from September 2025. CFTC Chairman Michael Selig stated, “The 2024 event contracts proposal reflected the prior administration’s frolic into merit regulation with an outright prohibition on political contracts ahead of the 2024 presidential election,” adding that the CFTC would now pursue “new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act that promotes responsible innovation in our derivatives markets in line with Congressional intent.” This move has been interpreted as a shift toward more innovation-friendly regulation in derivatives markets, a welcome change for many industry participants.

Elsewhere, the Office of the Comptroller of the Currency (OCC) delivered a major win to Latin America’s digital banking giant, Nubank, on January 29, 2026. The OCC conditionally approved Nubank’s application to form a national bank in the United States—just 121 days after the company’s initial filing. With over 127 million customers across Brazil, Mexico, and Colombia, Nubank’s entry into the U.S. market could reshape the competitive landscape for digital financial services.

North of the border, the Canadian Investment Regulatory Organization (CIRO) rolled out a new digital asset custody framework on February 3, 2026. The rules require dealer members to hold crypto assets with approved custodians unless they can demonstrate robust internal custody technology. The framework introduces a tiered, risk-based approach and sets minimum capital requirements, with additional safeguards for tokenized versions of traditional assets. According to CIRO, these changes aim to bolster investor protection as digital assets become more mainstream in Canada.

On the enforcement front, prediction markets found themselves in the regulatory crosshairs. On January 29, 2026, Nevada state court Judge Jason Woodbury issued a two-week temporary restraining order blocking Blockratize—the entity behind Polymarket, the world’s largest prediction markets exchange—from offering event-based contracts in the state. The judge wrote, “The resulting harm in evasion of Nevada’s ‘comprehensive regulatory structure’ and ‘strict licensing standards’ is immediate, irreparable, and not sufficiently remediable by compensatory damages.” Days later, Nevada’s Gaming Control Board announced a civil enforcement action against Coinbase for allegedly offering unlicensed wagering through sports events contracts. Not to be outdone, Hawaii lawmakers introduced a bill on January 30, 2026, that would explicitly define prediction market contracts as gambling, further tightening the regulatory noose on these platforms.

While regulators were busy, the markets themselves were anything but calm. On February 6, 2026, Bybit—the world’s second-largest cryptocurrency exchange by trading volume—released its latest Bybit x Block Scholes Crypto Derivatives Analytics report. The findings were sobering: nearly $500 billion had been wiped from total crypto market capitalization since late January, and Bitcoin had plunged about 40% from its $126,000 peak, triggering the largest wave of crypto liquidations since October 2025. Open interest in Bitcoin perpetual futures dropped from roughly $5 billion to $3.6 billion, signaling a sharp reduction in leverage as traders scrambled for safety.

Yet, all was not doom and gloom. The report found that, despite the severity of the correction, derivatives markets were not behaving as they had during previous bear markets. Demand for short-dated options increased, but implied volatility remained below realized spot volatility—a sign that traders were not pricing in sustained future turbulence. Premiums for downside protection rose, but not to the panicked levels seen in 2022. “Options market behavior suggests traders are not pricing in sustained future turbulence at levels seen during past crises, indicating cautious stability despite price correction,” Bybit’s analysis concluded. In other words, while risk appetite has clearly deteriorated, the market’s underlying structure appears more resilient than in past downturns.

As February unfolds, the digital asset world finds itself at a crossroads—caught between regulatory crackdowns, evolving legal frameworks, and the unpredictable tides of global markets. Whether these latest developments herald a new era of responsible innovation or simply the calm before another storm remains to be seen. For now, all eyes are on Washington, Wall Street, and the world’s trading screens, waiting to see what comes next.