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Conspiracy theorists aren’t surprised. They knew all along that central banks and governments would never allow a competitor to fiat money to exist. Even some regulators knew. For instance, Brian Brooks, former head of the Office of the Comptroller of the Currency, an independent bureau of the U.S. Department of the Treasury, has intonated as much.
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Regulators put a thaw over the entire US-based crypto industry. The Securities and Exchange Commission (SEC) enforced actions against regulated US crypto entities, including Kraken and Coinbase, while the Commodity Futures Trading Commission (CFTC) sued Binance.
When the SEC came for Kraken a second time, founder and former CEO Jesse Powell took to Twitter to lament the implications.
Message is clear: $30m buys you about 10 months before the SEC comes around to extort you again. Lawyers can do a lot with $30m but the SEC knows that a real fight will likely cost $100m+, and valuable time. If you can’t afford it, get your crypto company out of the US warzone.
— Jesse Powell (@jespow) November 21, 2023
Moreover, a Wells Notice was served in February to Paxos demanding the New York-based company stop minting the Binance USD (BUSD) stablecoin.
Then there is the “Economic Report of the President,” in which the Biden Administration argued that cryptocurrency is not a useful technology while highlighting the pervasive fraud of the industry.
Additionally, the bank closures of three crypto-friendly banks—Silvergate, Silicon Valley Bank, and Signature Bank—have raised questions throughout a skeptical crypto industry as politicians such as Senator Elizabeth Warren call for a crypto crackdown. Warren went as far as to introduce legislation to outlaw self-custody in crypto.
Some players within the crypto industry pointed to these three bank failures as evidence of a conspiracy by federal agencies to destroy crypto—some have called it the new Operation Choke Point. In fact, even former Congressman Barney Frank has suggested that the bank for which he serves on the board, Signature, was shut down as part of an anti-crypto crusade. Frank served as a board member of Signature Bank. He believes the bank was forced into liquidation by the New York Department of Financial Services (NYDFS) because “regulators wanted to send a very strong anti-crypto message.”
NYDFS denies Frank’s allegation. Reuters reported the Federal Deposit Insurance Corp. (FDIC) would require any buyer of Signature Bank to restrict crypto clients’ banking services. Despite the fact that the FDIC denied buyers would forgo crypto clients, such clients were not included in the acquisition.
Notably, the present head of the FDIC is Martin Gruenberg, an architect of the original Operation Choke Point, which was met with lawsuits and hearings that concluded the US government abused its power. The FDIC made promises about reforms, which now seem to ring empty.
When regulators shut down Signature Bank, its managers were themselves surprised at the decision to place the bank into receivership. As Barney Frank, a Signature Bank board member known for the widespread banking regulation Dodd-Frank Act enacted in the aftermath of the 2008 financial crisis, noted:
“I think that if we’d been allowed to open tomorrow, that we could’ve continued—we have a solid loan book, we’re the biggest lender in New York City under the low-income housing tax credit. I think the bank could’ve been a going concern.”
Frank also said: “This was just a way to tell people, ‘We don’t want you dealing with crypto.” Frank, who chaired the House Financial Services Committee after the global financial crisis, went on to state at the time that there was “no real objective reason” that Signature had to be seized. He blames his bank’s shutdown on panic around cryptocurrency. He said: “We became the poster boy because there was no insolvency based on the fundamentals.” Frank added:
“The FDIC and the state of New York looked at things and made their decision. Frankly, I was surprised by it. They apparently had a more negative view of our solvency.”
Frank doesn’t think SVB nor his bank would have collapsed if FTX had not collapsed last year. It set off a panic that has yet to subside. The claimed justification for shutting down Signature was its Signet product, which was viewed as “systemic.” Signature’s asset portfolio, however, was nowhere near as bad as SVB’s. Regardless, as of this year, crypto’s three largest banking partners are now history.
2023 wasn’t all bad for the US crypto industry, as the US judicial branch pushed back some against agencies such as the SEC, even accusing the agency of engaging in deception. Nonetheless, it appears the damage had been done in many ways.
It seems clear now that the US government poses an existential threat to the nation’s cryptocurrency industry. It came for the industry in 2023, and 2024 might be more similar. Indeed, founders and established companies think the grass looks greener on the other side in jurisdictions where their right to innovation is respected. That’s a bloody shame for the so-called “land of the free” and the crypto industry as a whole.
Kadan Stadelmann
Kadan Stadelmann is the chief technology officer of Komodo, an open-source technology provider and creator of AtomicDEX, a cryptocurrency wallet and decentralized exchange rolled into one dApp. Kadan is also a blockchain developer and operations security expert who previously worked in IT for the Austrian and Tunisian governments.
