Novogratz on Operation Choke Point 2.0 and the Future of Crypto in America

Galaxy Digital Holdings Inc. (OTCPK:BRPHF) CEO Mike Novogratz voiced his concerns about the US regulatory environment for the crypto industry in a recent interview.

According to what Novogratz said in his interview with The Block’s East Coast Managing Editor Nathan Crooks, the crypto industry is “under attack” by US regulators. The Galaxy Digital boss believes that “Operation Choke Point 2.0”, a speculated coordinated crackdown, is a reality.

As you may know, Coin Metrics co-founder Nic Carter published a blog post (titled “Operation Choke Point 2.0 Is Underway, And Crypto Is In Its Crosshairs”) that said:

“What began as a trickle is now a flood: the US government is using the banking sector to orchestrate a sophisticated, widespread attack against the crypto industry. And the administration’s efforts are no secret: they are clearly expressed in memos, regulatory guidance and blog posts. However, the breadth of this plan – which spans virtually every financial regulator – as well as its highly coordinated nature, has even the most steely-eyed crypto veterans jumpy that crypto businesses may end up completely unbanked, stablecoins may be stranded and unable to handle flows in and out of crypto, and exchanges may be completely shut off from the banking system.“

For example, Novogratz mentioned the rapid shutdown of Signature Bank, stating that it could have been given a lifeline like Republic Bank and other banks, but was shut down due to its association with crypto. He said, “There’s no reason to shut down,” adding, “because they’re associated with crypto, and may be associated with Trump.”

He also highlighted the high cost of legal bills for crypto companies and banks’ reluctance to cooperate with the industry, which he sees as a tax imposed by regulators, such as SEC Chairman Gary Gensler. Novogratz explained, “It’s a tax that Gensler and Co. are putting on our industry, trying to get the banks not to bankroll people.” He further stated that many portfolio companies and peers need help securing banking relationships, leading to smaller, lesser-known banks servicing large institutions.

Despite Miami’s efforts to position itself as a global crypto hub, Novogratz believes the US federal government could limit the city’s potential. However, he remains hopeful that the US judiciary will act as a firewall, protecting the industry from overreach. Novogratz said, “The hope is that we have checks and balances in America, that we have a judiciary that is mostly apolitical.”

He is concerned about the current administration’s focus on crypto, saying, “We are so concerned about crypto. Bank of America’s non-mark-to-market losses are greater than the market cap of Bitcoin. He also commented on SEC Chairman Gensler’s recent request for more funding to go after bad crypto actors, arguing that the focus should be on regulating artificial intelligence.

Novogratz also discussed the potential impact of the crypto issue on upcoming elections, noting that many Americans are passionate about their right to store wealth in crypto. He estimated that “15 million are single-issue voters,” meaning they would vote based on a candidate’s stance on crypto. He mentioned that politicians from both parties had started showing support for crypto before Sam Bankman-Fried’s involvement, but after his controversial donations, support has waned. Novogratz described the situation: “Politicians are politicians, and therefore they are all running for the hills.”

When asked about the US dollar’s survival as a global reserve currency, Novogratz acknowledged that some actions may be driven by fear, but he also pointed out that politicians such as Elizabeth Warren have a strong anti-crypto stance. He stated, “By and large, it just doesn’t register for enough people to care.”

Regarding Bitcoin’s price, Novogratz mentioned that the current price range is between $25,000 and $40,000, with $35,000 as the next target. He said: “These are big weekly bars, monthly bars, quarterly closes.” However, he cautioned against the industry’s use of hyperbole when discussing price increases, as it could contribute to anti-crypto sentiment among regulators.

Novogratz believes that a slowing economy and a potential credit crunch could lead to the Fed considering rate cuts, which would pave the way for crypto’s next leg of growth. He elaborated: “The Fed will talk about interest rate cuts in the autumn. And once that happens, it’s the next stage for crypto.”