US Government Secretly Cracking Down on Crypto?

by Arthur · February 9, 2023

The crypto industry has faced increased regulatory pressure since the beginning of the year, sparking discussion on Twitter about whether the US government is secretly trying to crack down on the entire industry.

The final piece in the theory’s puzzle comes from Coinbase CEO Brian Armstrong. Writing via Twitter a few hours ago, Armstrong said he had heard rumors that the US Securities and Exchange Commission (SEC) wants to ban retail betting in the US.

Jake Chervinsky, Chief Policy Officer of the Blockchain Association, confirmed the rumor. “I have heard the same rumor and very much agree with Brian that an attack on the strike would be an extreme mistake in US policy,” the lawyer said.

Rumors of a crypto crash

Just yesterday it was officially announced that the SEC has opened an investigation into Kraken, one of the largest US exchanges. The reason is the alleged offer of unregistered securities to US customers.

But the attack on the crypto industry goes much deeper. Journalist Nic Carter wrote:

I don’t want to scare you, but since the turn of the year, a new Operation Choke Point-type operation began targeting the crypto space in the US. it’s a well-coordinated effort to marginalize the industry and cut its connection to the banking system—and it’s working.

Author Samuel Andrew reports that the US central bank and the Office of the Comptroller of the Currency (OCC) are in the middle of a massive crypto-debanking operation. An anonymous source told Andrew, “what is happening is draconian and aims to kill crypto.”

The analyst explained that the Fed and OCC are even targeting Morgan Stanley and Custodia, as well as crypto-friendly states like Wyoming. Another source told Andrew that Paxos and others were told by the OCC to either withdraw their banking license applications or they would be rejected by Friday.

“VCs are getting very, very concerned about their crypto portfolio companies being bankrolled en masse,” Andrew quoted another source, continuing: “The OCC is said to be producing a paper soon that is said to be so draconian that a significant portion of OCC staff may leave.”

Traces of the US government

The US government seems to be focusing particularly on the industry’s connection to the banking sector. A putative goal could be for crypto companies to end up completely unbanked, so they don’t process deposits and withdrawals in fiat, as Binance recently communicated for US customers (not Binance US). But stablecoins can also run into problems.

It is many characters for this, as Carter wrote. On December 7, Signature Bank announced its intention to halve deposits from crypto customers. On January 3rd, the Fed, FDIC and OCC released a joint statement on security risks for banks dealing in cryptocurrency.

A few days later, on January 9, Metropolitan Commercial Bank ended all crypto operations. On January 21, Binance responded to Signature Bank’s policy and decided to only process fiat transactions worth more than $100,000.

On January 27, the Federal Reserve rejected crypto bank Custodia’s two-year application to join the Federal Reserve System and issued a warning for banks to hold crypto assets or issue stablecoins. On the same day, the National Economic Council also issued a policy statement that did not explicitly prohibit banks from serving crypto customers, but strongly discouraged banks from doing so.

Even in the first week of February, the actions continued. The Justice Department opened an investigation into Silvergate for its connections with FTX and Alameda. On Tuesday, the Fed had its Jan. 27 statement published in the Federal Register, making the statement a final rule, without congressional review.

Whether the initiatives will succeed or whether the crypto industry in the US can withstand the pressure remains to be seen. If not, the industry may be forced to go offshore.

At press time, the Bitcoin price was $22,711.