Binance and other cryptocurrency firms were once expected to emerge from the rubble of the FTX collapse as the survivors of a market that would inevitably rally. Now, US regulators have made it clear that the knives are out for the entire crypto sector, with intent to inflict death by a thousand cuts.

The Securities and Exchange Commission’s 136-page complaint on Monday against Binance for allegedly mishandling customer funds, improperly functioning as an unregistered exchange and breaking securities rules makes for brutal reading on its own — largely thanks to internal chats that would make a pre-2008 Libor trader blush. “We are operating a fking unlicensed securities exchange in the USA bro,” Binance’s compliance officer apparently told a colleague in 2018. On top of flouting rules by letting Americans improperly open accounts and trade, the SEC alleges wash trading artificially inflated Binance volumes. (Binance says it takes the allegations “seriously” but will “vigorously defend” its platform.)

Stacked against other regulatory actions — including yesterday’s announcement that the SEC has sued Coinbase Global for allegedly breaking US securities rules — it looks like overseers are slowly adding bricks to a wall designed to encircle the industry.

The SEC’s crackdown comes after the Commodity Futures Trading Commission’s complaint against Binance, a series of crypto-friendly bank closures, and court judgments against social-media influencers around the world who were paid real money to promote the virtual kind. In the wake of a Wild West-style crypto boom-and-bust cycle that ruined lives and abetted crime, regulators look determined to shrink this market in a similar fashion to their defanging of the financial industry after the global financial crisis.

Bitcoin’s price is down 6 per cent since the SEC’s filing against Binance, at about $25,000, while Coinbase shares were down about 12 per cent in pre-market trading yesterday. More than one third of Coinbase’s net revenue is potentially at risk from SEC action, according to Berenberg analyst Mark Palmer.

The response from crypto fans and firms is to decry a witch-hunt — Binance says it is an “easy target” caught in the middle of a “regulatory tug-of-war”. And maybe US regulators are hoping to send a message to those other jurisdictions rolling out the red carpet for Binance, such as France, or to politicians closer to home proposing friendlier regulations that would build an American home of sorts for crypto.

Regulators all around the world are finally waking up to the risks crypto poses to financial stability and consumer protection. Retail punters have lost money and governments feel they have lost control — the Group of Seven last month said it would pursue more regulation and oversight of crypto markets and decentralised finance to tackle these dangers. Binance in May said it was leaving the Canadian market after new crypto rules were introduced, while its Australian arm lost access to some deposit services as banks became increasingly worried about scams.

There is a good chance yet more shoes will drop. Bloomberg has reported that the US Justice Department is investigating whether Binance was used illegally to let Russians skirt sanctions.

So in the short term, expect to keep hearing the whooshing sound of money being yanked from the crypto ecosystem as regulation combines with the pain of rising interest rates and fading “fear of missing out”. Crypto volumes are slumping and trading firms are bailing out — BlockTower Capital wound down a “market-neutral” crypto fund earlier this year. The US dollar value of venture capital firms’ token holdings has decreased by 25 per cent for Andreessen Horowitz, 37 per cent for Paradigm and nearly 70 per cent for Polychain, according to Nansen data cited by Fortune magazine. Without the speculative fizz of rising prices, there tends to be a drop in the supply of greater fools.

Longer term, crypto advocates are pinning their hopes for a comeback on two things: time and politics. Every bust has brought another boom in its wake, and it is hard to suppress animal spirits when the get-rich-quick-urge returns — with one possible catalyst being a downward path for interest rates if recession hits. Politicians, meanwhile, may find themselves unable to resist crypto lobbyists or pressure from crypto fans as financial centres compete to be the friendliest host to the new, new thing (Paris, I’m looking at you).

Still, even if that crypto comeback arrives one day, what’s happening now still feels like a watershed moment. The Binance-FTX era of crypto was dominated by powerful offshore exchanges offering very risky derivatives bets to punters via opaque black-box structures with little oversight. Now that regulators are shining a light on anything that is not plain vanilla, and TradFi firms from Nomura Securities to Société Générale are tiptoeing into a crypto market that was supposed to disrupt them, the sharp end of the regulatory knife has made contact. This time, the blow could prove fatal.

• Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes