America’s attempted assassination of crypto
Bitcoin is not fentanyl; there are no legal grounds to disallow its existence. Nor are there moral grounds. Unless, of course, you are terrified that people will lose confidence in your currency and banking system, which is a scenario playing out in the banking crisis and bank failures in the US and beyond.
While the tech world’s attention has been focused on the remarkable and surprisingly contentious goings-on in the world of AI, and while the financial world’s attention has been focused on a teetering global financial system, some seriously bad stuff has been going down in the world of crypto.
Not hacks and grift and fraud, as we have come to expect. But rather a brutal, coordinated and possibly illegal effort by multiple US regulators and departments to assassinate crypto. Stamp it out. Eject the entire industry from the body of the state. And it is still going on. Blood is splattering everywhere, so to speak.
I am usually averse to conspiracy theories; they mostly tend to bore me with their dotted-line connections and causal impossibilities. But, I suppose, sometimes they have merit. This one smells really bad – and there is a smoking gun or two.
We could start anywhere because actions against crypto companies have been growing increasingly aggressive, especially those taken by the Securities and Exchange Commission (SEC) against various companies. No doubt some of these are entirely justified; there have been plenty of miscreants in this space, not the least of whom is Sam Bankman-Fried and FTX.
The first inkling of a coordinated attack on crypto came on 27 January, when a regional Wyoming bank called Custodia was denied a national account by the Federal Reserve, even though they had worked together on the application for months. Reasons given were opaque and non-explanatory.
Who is Custodia?
Custodia is a bank started by Caitlin Long, one of the icons of the crypto industry whose background is steeped in traditional finance at companies such as Morgan Stanley.
Long moved back to Wyoming after a stellar career in New York, and had set about passing state legislation for a new type of bank, one that did not lend money. It simply took deposits in, and paid interest. Making it extremely safe, much safer than any other bank who did make loans.
Critically, these banking laws were meant to reduce risk in the crypto industry, giving depositors 100% confidence that their deposits into crypto-exchanges were backed 1:1 at a traditional bank. It was a perfect solution for a new industry still battling volatility and missteps.
The Fed engaged willingly and then, quite suddenly, withdrew. No one knew why, and it didn’t explain.
Next came an increasing series of actions by regulators and government agencies. Curiously coincidental in time, sometimes happening within hours of a seemingly unrelated announcement from some different corner of government. Keep in mind, some of the bodies are supposed to be entirely independent – they are designed not to collaborate for excellent reasons of conflict avoidance.
Among them are the White House, the Federal Reserve, the Office of the Comptroller of the Currency (OCC, which is the banking regulator within the US Treasury), the Commodity Futures Trading Commission (CFTC, the commodities regulator), the Justice Department, the Federal Deposit Insurance Corporation (FDIC, the banking insurer) and the SEC (the securities regulator). All of these bodies have ramped up action against crypto. The rules seem to have been made in concert.
So startling and obvious are the connections between the many actions taken by these agencies against various companies and individuals in the crypto industry that Nic Carter, a well-respected commentator and investor, wrote a paper that proposed that somewhere behind thick doors within the depths of the upper levels of government, a decision had been taken to assassinate crypto, which he dubbed Operation Chokepoint 2.0.
This is, of course, illegal for many reasons. Not least of which is that consenting adults cannot be not barred from ascribing value to anything and trading that thing with each other. Bitcoin is not fentanyl; there are no legal grounds to disallow its existence. Nor are there moral grounds.
Unless, of course, you are terrified that people will lose confidence in your currency and banking system, which is a scenario playing out in the banking crisis and bank failures in the US and beyond.
This is also where Operation Chokepoint 2.0 moved from tinfoil hat conspiracy to most likely scenario.
Among the few banks that have failed in this latest crisis is the curious case of Signature Bank, one of the two biggest banks legally serving the crypto exchange industry.
Like hundreds of other banks, it was a little shaky, having taken a wrong side bet on interest rates (like Silicon Valley Bank weeks earlier, described here).
There were many other banks in much worse shape than Signature, and yet on Sunday, 12 March, it was forced into receivership by the New York Department of Financial Services and handed over to the FDIC.
One could argue that this was just a regulator doing its job. Until the FDIC facilitated the subsequent purchase of its assets to New York Community Bank minus its crypto accounts and minus its 24/7 network, Signet, a piece of dazzling real-time payment technology much beloved by crypto business. Why?
Barney Frank, a former congressman who chaired Signature Bank (and who co-authored an important piece of banking regulation called the Dodd-Frank Act) has made the point often since the receivership – the bank was weak, but not insolvent.
It would have been fine by Monday morning, the day after receivership was enforced. And, remember, the banking regulator has no authority to tell the bank who to do business with. That’s exactly what it did in this case.
All very fishy, no?
Is there a smoking gun anywhere?
Yes. Caitlin Long of Custodia Bank has one. She has been provided with an email that proves that the OCC and the Fed were collaborating when she was denied a national banking licence. This is a coordinated effort among many agencies. It is illegal, and she has hinted about a slew of coming lawsuits.
And so we come to Senator Elizabeth Warren (pictured), once a candidate for president of the US, who has built her entire re-election campaign on an anti-crypto message. She has accreted an unseemly collection of left-wing Democrats and Republican bankers around her, seeking to strike a Joan of Arc attitude as she attempts to dismantle one of the most innovative financial technologies of the 21st century.
In the process, she has risked the ire of the about 50 million average American citizens who have traded crypto.
Will the government complete its assassination of a legal industry because it doesn’t like it? Because it threatens powerful interests? Will Elizabeth Warren get her way and her place in history?
Of course not. Crypto is global. Hong Kong, Dubai, Switzerland and Singapore are now all welcoming a flood of formerly US-based companies and dollars and software developers and innovators fleeing from the US to their much more comfortable regulatory shores.
The US might indeed kill crypto but will find itself badly hurt in the process as crypto’s cornucopias are embraced elsewhere, at America’s expense. DM
Steven Boykey Sidley is professor of practice at JBS, University of Johannesburg. He is the co-author of Beyond Bitcoin: Decentralised Finance and the End of Banks.