Crypto industry believes US government is trying to ‘kill crypto’

The repeated failures of crypto firms to secure regulatory approvals in the US has led to a “universal belief” among the industry that the country’s financial watchdogs are unwilling to allow crypto to flourish, the Intelligencer reported.

According to the report, US financial regulators make it “impractical or impossible” for crypto-related companies to operate in the country via a series of guidelines and rules that are both “written and unwritten”.

Blockchain Association CEO Kristin Smith told the paper:

– It feels coordinated. It feels like a carpet bombing.”

The government has repeatedly denied being anti-crypto, but the actions of regulators in recent months – particularly those of the Office of the Comptroller of the Currency (OCC) – against crypto-related companies’ applications paint a different picture.

Protego

The OCC recently rejected the application of Protego Trust despite granting the company conditional approval in 2021. The company wanted to provide crypto custody services to institutional clients and had no intention of engaging with private investors.

According to the report, Protego was “reverse-engineered” to ensure it appealed to decision makers in DC and would have a smooth regulatory approval process. The company raised $80 million and quickly secured conditional approval that helped it get a $2 billion valuation.

However, the OCC rejected Protego’s application for a national trust charter on a previously undisclosed “technicality” after it completed the requirements for full approval in February, a person familiar with the matter told the newspaper.

Protego founder Greg Gilman said:

“Ultimately, it feels like it was an unannounced and unexplained policy change that derailed our efforts.”

Despite Protego being built to appeal to the regulatory landscape, the experience was similar to most crypto-related companies trying to secure approval in the country.

Operation Chokepoint 2.0

The industry claims that regulators’ negative attitude towards crypto points to a resurgence of Operation Chokepoint, which was an Obama-era policy to stifle certain politically unfavorable industries such as gambling, tobacco and porn.

Pursuant to the policy, prudential financial regulators made a concerted effort to cut off these industries’ access to banking services on the basis of reputational risk that was often arbitrarily defined. The practice continued until Congress stepped in and created a rule to ensure that didn’t happen.

However, the Biden administration abolished the rule after taking office. This has led to concerns that regulators are once again trying to “de-bank” unfavorable industries – crypto being the latest target.

Some members of Congress recently sent regulators a letter highlighting these concerns and instructing them to release all communications with crypto companies to investigate whether the unfair practices happen again.

Meanwhile, Congress recently held hearings where industry experts and participants testified about the myriad obstacles and frustrations with the regulatory process. However, lawmakers have yet to take any action on the matter.

This sentiment is also echoed by observers in political and legal circles, according to the Intelligencer report.

A former regulatory official told the newspaper on condition of anonymity that:

“It’s different from the original Choke Point, in that they’re quite public about it — no one is guessing their views. Another difference is that it’s actually broader in scope.”