The US will be the biggest loser from Operation Chokepoint 2.0, crypto supporters say

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(Kitco News) – Anyone who has been paying attention to financial headlines in recent weeks knows that the world is currently going through the worst banking crisis since 2008, as many banks have already failed as the contagion slowly spreads.

For crypto fans, the struggles with banking have been going on for some time, but a shaky financial system is not to blame in this case, as it has been the US government that is the source of the difficulties.

Nic Carter, a partner at Castle Island Ventures, was one of the first to point out this development in a February 7 chirping: “I don’t want to sound the alarm, but since the turn of the year a new operation of the type Operation Choke Point aimed at the crypto space in the USA began. It’s a well-coordinated effort to marginalize the industry and cut its connection to the banking system – and it’s working.”

According to William Isaac, who served as chairman of the Federal Deposit Insurance Corporation (FDIC) from 1981 to 1985, chokepoint operations are designed “to target entire industries deemed undesirable by putting regulatory pressure on the banks that serve them.”

Operation Chokepoint (1.0) was an effort conducted by the US Department of Justice under the Obama administration in 2013 to investigate the business that banks did with firearms dealers, payday lenders and other companies believed to be at high risk for fraud and money laundering.

Carter provided evidence for his theory of an ongoing Operation Chokepoint 2.0 in a February 9 blog post, highlighting a January 3 joint statement on crypto assets by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller. of the Currency (OCC), which warned that decentralized blockchain networks are “highly likely to be inconsistent with safe and sound banking practices.”

In the time since Carter first suggested the possibility of a stealth crackdown on cryptocurrencies, many crypto supporters have repeated accusations that the government has embarked on Operation Chokepoint 2.0 focused on cutting the crypto industry off from all banking services.

“At this point, it’s hard to deny that the broader crypto industry is being targeted, regardless of the official comments from US regulators,” said John Haar, CEO of Swan Bitcoin, during a call with Kitco Crypto. “And no legislation has been passed authorizing such actions.”

Haar cited speculation that Signature Bank was actively shut down by regulators — as opposed to the bank failing on its own — as an example of undercover blackballing. “Reuters reported that the FDIC mandated the acquirer of Signature Bank to divest all crypto customers upon acquisition,” Haar noted. “The FDIC denied this, but when it was announced that Flagstar Bank would buy Signature Bank’s assets, it excluded all deposits belonging to crypto companies.”

Swan Bitcoin has first-hand knowledge of the crackdown, according to Haar, as the firm was dropped by Citibank in 2022 “for no reason and will very little notice.”

“The fact that US regulators are denying the existence of Operation Chokepoint 2.0 in their official comments is consistent with what we saw in the first iteration, which occurred during the Obama administration,” Harr said.

“So far, the targeting of the broader crypto industry appears to have been insidious and arbitrary, as opposed to transparent and all-encompassing. This means that crypto companies may find themselves in a position where they can find banks that want to work with them, but they will choose from a small and ever-changing list.If this is the case, it would be prudent for crypto companies to evaluate multiple banking partners and maintain multiple active banking relationships, because you never know exactly when a bank will stop serving the industry at short notice and not provide some explanation as to why, he advised.

Create a non-violent revolution

These sentiments were echoed by Stefan Rust, CEO of on-chain data aggregator Truflation, who said: “There is no doubt that Operation Choke Point 2.0 is real. This is a concise, targeted effort to shut down and exit crypto when they go through new banks that are not part of the systemically important global banks.”

It is no simple coincidence for Rust that “Suddenly, governments in Europe and the US are very sensitive about Silvergate, Signature and also Deltec Bank, all of which are the off-ramps for crypto in a now emerging $1 trillion industry.”

For Rust, these moves point to a concerted effort to ensure that all funds entering and exiting the crypto ecosystem must pass through systemically important banks that regulators work with on a regular basis and can exercise a greater degree of control over.

“You can be sure that JP Morgan, Goldman Sachs, Barclays, Nomura and UBS are all working on crypto desks, doing OTC trades for their high net worth individuals and potentially even building out on and off ramps for cryptocurrencies,” Rust said .

While many crypto supporters have decried the latest moves, Rust offered an alternative view, saying, “Regardless, this is ultimately good for the crypto industry. Crypto evolved from being its own ecosystem to quickly becoming a 1 trillion industry dollars today; Nevertheless, the community is strong, believes in crypto and blockchain technology, and will continue to grow this ecosystem with or without banks. No doubt such bridges will re-emerge, as trading between crypto and fiat is extremely lucrative. “

Rust suggested that the latest moves by the Securities and Exchange Commission (SEC), the Federal Reserve and other regulators only serve to cultivate stronger energy and unity among the crypto community “where the sense of non-violent rebellion is stirred up and constantly awakened.”

Rather than being a negative for the crypto community, Rust said it was unfortunate for the US economy. “Historically, the US has been a leader in innovation that is open to new ideas and disruptive change – it has thrived on that philosophy. In fact, now only crypto represents that spirit in its truest form.”

He went on to say that the current global cohort of leaders, many of whom are in their 60s and 70s, are “largely concerned with protecting the status quo,” noting that the boomer generation was “raised in a period of almost unparalleled economic prosperity, [and] has accumulated a vast and vast amount of both wealth and debt.”

The debt, Rust said, is now being “layered onto the next generations, especially very young people in their 20s and 30s. This generation will have to carry this burden forward — a burden of debt, fear, insecurity, protectionism and scarcity.”

truflatoin CEO chastised the current leadership team, saying that “Instead of encouraging and cultivating new, emerging industries that can generate strong economic growth that can help younger generations pay off terrible student debt and build some level of wealth, these leaders are crushing such industries to protect a banking system that serves very, very few.”

The US is the biggest loser in Operation Chokepoint 2.0

Rust called on governments to return to a focus on entrepreneurship and lift up pioneers who are willing to take risks to develop the system forward. “This is the kind of hope we need to bring back to business instead of this market-driven fear we now find ourselves in.”

Aggressive moves to limit crypto innovation in the US have led to “an increase in jurisdictional arbitrage,” he said. “Countries such as Dubai, Singapore and Hong Kong are all trying to find a foothold to attract crypto talent to their respective jurisdictions with favorable tax regulatory frameworks that are clear and accessible.”

Ultimately, this only hurts the forward-looking outlook of the United States and limits the ability of American citizens to capitalize on the future growth of the blockchain industry.

Ashton Addison, founder and CEO of the Crypto Coin Show, echoed this point, saying, “Operation Chokepoint … is not good for digital assets in the United States. However, cryptocurrencies and digital assets are global assets, and limiting US citizens’ access to crypto will not stop crypto adoption from happening globally.”

Addison said the move “is only worrisome for Americans because they will miss out on technology that will positively change the world and global finance as we know it. These limits will only leave the United States behind in global technology adoption, and countries that embrace Web3 technologies will have a advantage as technology continues to grow exponentially.”

Despite the heavy-handed efforts of US regulators, Addison sees these restrictions as having little effect on the direction of the market and only marginally affecting the market on a day-to-day basis. “Bitcoin is unstoppable and more countries are bound to adopt it, so the US needs to play its cards right to remain competitive on the global front.”