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The American authorities seem to revive past techniques to crack down on crypto companies and banks providing services to the industry, several sources said cointelegraph.
The alleged strategy consists of isolating the traditional financial system from the crypto market by relying on “multiple agencies to discourage banks from dealing with crypto firms,” with the goal of leading crypto businesses to become “completely unbanked,” according to Nic Carter — co-founder of venture firm Castle Island and crypto intelligence firm Coin Metrics.
Claims are based on conversations that Carter had with bank officials, including crypto-indigenous and traditional banks, he said cointelegraph. They tell me they are under tremendous pressure from the Federal Reserve Board and the Federal Deposit Insurance Corporation. The founders say they can't get bank accounts for new businesses." According to Carter:
"Regulators threaten and intimidate bank executives behind the scenes and then issue public "guidelines" emphasizing that banks are always free to retain customers for cryptography or crypto services. The reality is that they are not at all free to do so.”
Other recent regulatory events include a joint statement released on Jan. 3 by the Federal Republic of Germany, the fdic and the office of the comptroller of the currency warning about the risks of banks engaging in crypto and encouraging them to refrain from doing so due to “safety and soundness” concerns. Also last month, BINANCE announced that it would only process U.S. dollar transactions over $100,000 due to a new Signature Bank policy.
In December 2022, Signature Bank announced plans to curtail crypto services, return funds to clients and close accounts. The bank reportedly borrowed nearly $10 billion from the U.S. Federal Home Loan Bank System in the last quarter of 2022 due to liquidity issues related to the bear market and the collapse of crypto exchange FTX.
"Cryptographic exchanges and related intermediaries operating outside the United States are of particular concern because their choice of jurisdiction is typically to maximize profits, generally at the client's expense," Aaron Kaplan, joint president of blockchain fintech prometheum and lawyer at the law firm gusrae kaplan nusbaum, told cointelegraph. He explained:
"Banks are reassessing the suitability of continuing to offer these services."
Another priority for U.S. regulators is apparently to ban crypto staking services for retail customers, COINBASE CEO Brian Armstrong commented on Twitter. Staking is a process whereby crypto investors lock crypto assets into a smart deal in exchange for rewards and passive income.
1/ we hear rumours that the dry wants to get rid of crypto staking in the United States for retail clients. I hope that's not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.
— Brian Armstrong (@brian_armstrong) February 8, 2023
The technology of the American authorities is not new. In 2013, a federal regulatory initiative called "Operation Choke Point" targeted various "high-risk" sectors and intensified the oversight of financial institutions that provide services to these businesses.
Implications for crypto businesses.
The consequences for the crypto industry could range from reducing retail holders’ ability to exchange coins for the dollar in addition to crypto exchanges closing operations in the U.S. market and a lack of access to financial innovation, said Carter. He believes that the movement would drive the cryptography industry back to previous days:
"This is a return to the "bad old days" of 2014-16, when it was extremely difficult to access funds on the stock exchange. There's nothing good about it."
Kaplan believes that the “crypto financial services ecosystem is evolving to come in line with established regulatory frameworks,” meaning that companies in the space will need to “embrace regulation or perish.”
On the other hand, Carter anticipates that the initiatives will be counterproductive for industry and retail investors, enabling "ghost banks" and further delaying its development in the country. "They seem to think they can cut off access for crypto users to the next FTX by harassing banks. This is not true, because there are already chains of blocks and stablekins. These people are naive. The real goal is to curb the growth of cryptography by all means available to them."
Cointelegraph's request for comment was not immediately answered by the Federal Reserve and the Office of the Comptroller of the Currency.
