US authorities appear to be resurrecting old techniques of cracking down on crypto firms and banks offering services to the industry, multiple sources told Cointelegraph.
The alleged strategy is to insulate the traditional financial system from the crypto market by blanketing “multiple agencies to discourage banks from doing business with crypto companies”, with the aim of driving crypto companies to become “completely unbanked”. according to Nic Carter – co-founder of venture capital firm Castle Island and crypto intelligence firm Coin Metrics.
The claims are based on conversations he has had with bank executives, including crypto native and traditional banks, Carter told Cointelegraph. “They tell me that they face immense pressure from the Fed (Federal Reserve) and the FDIC (Federal Deposit Insurance Corporation). The founders tell me that they can’t get bank accounts anywhere to new start-ups.” According to Carter:
“Regulators threaten and intimidate bank executives behind the scenes, then issue public ‘guidance’ emphasizing that banks are still free to hold crypto or serve crypto customers. In reality, they are by no means free to do it.”
Other recent regulatory events include a joint statement published on January 3 by the Fed, FDIC and Office of the Comptroller of the Currency (OCC) warning of the risks of banks engaging in crypto and encouraging them to refrain from doing so due to security concerns. “security and solidity”. Also last month, Binance announced that it would only process fiat transactions above $100,000 due to a new Signature Bank policy.
In December 2022, Signature Bank announced plans to cut crypto services, return funds to customers, and close their accounts. The bank reportedly borrowed nearly $10 billion from the US Federal Home Loan Banks System in the last quarter of 2022 due to liquidity issues related to the bear market and the collapse of crypto exchange FTX.
“There is particular concern with crypto exchanges and related intermediaries that operate outside of the United States, as their choice of jurisdiction typically focuses on maximizing profit, usually at the expense of the customer,” Aaron Kaplan, CEO of blockchain fintech Prometheum and lawyer. company Gusrae Kaplan Nusbaum, told Cointelegraph. He explained:
“Banks are reassessing whether continuing to provide these services is worth the risk.”
Another priority for US regulators would be to ban crypto staking services for retail customers, Coinbase CEO Brian Armstrong commented on Twitter. Staking is a process that allows crypto investors to lock crypto assets into a smart contract in exchange for rewards and passive income.
1/ We hear rumors that the SEC would like to get rid of crypto staking in the United States for retail customers. I hope it’s not, because I think it would be a terrible path for the United States if allowed.
—Brian Armstrong (@brian_armstrong) February 8, 2023
The techniques of the American authorities are not new. In 2013, a federal government regulatory initiative called Operation Choke Point targeted a variety of “high risk” industries, increasing oversight of financial institutions providing services to these businesses.
Impacts on Crypto Businesses
Consequences for the crypto industry could range from reduced ability for retail holders to exchange coins for USD, in addition to the shutdown of crypto exchanges in the US market and a lack of access to financial innovation, Carter said. He believes the move would lead the crypto industry back to the days before:
“It’s a throwback to the ‘bad old days’ of 2014-2016 when it was incredibly difficult to get funds on scholarships. There’s nothing positive about that.”
Kaplan believes that “the crypto financial services ecosystem is evolving to align with established regulatory frameworks,” which means companies in the space will have to “adopt regulation or perish.”
By contrast, Carter predicts that the initiatives will be counterproductive for the industry and retail investors, strengthening “shadow banks” and further stunting its development in the country. “They seem to believe that they can cut off crypto users’ access to the ‘next FTX’ by harassing banks. That’s not true, because blockchains and stablecoins already exist. They’re naive. The real goal is to stem the growth of crypto any way they know how.”
The Federal Reserve and the Office of the Comptroller of the Currency did not immediately respond to Cointelegraph’s request for comment.