Unique perspectives dominate this analysis, exclusively reflecting the author’s views, and are not indicative of Exeton Tech’ editorial stance.
In the intricate world of cryptocurrency, speculation about government interference is not new. Advocates of decentralized finance have long speculated that entities like central banks would inevitably challenge the rise of digital currencies, posing a threat to traditional fiat systems. This sentiment is echoed by notable figures such as Brian Brooks, the former leader of the Office of the Comptroller of the Currency – a distinct entity within the U.S. Department of the Treasury – who has subtly hinted at such eventualities.
In a significant move, U.S. regulatory bodies have initiated stringent measures impacting the crypto sector domestically. The Securities and Exchange Commission (SEC) has launched enforcement measures targeting major U.S.-based crypto platforms like Kraken and Coinbase. Meanwhile, the Commodity Futures Trading Commission (CFTC) has engaged in legal actions against global crypto exchange Binance.
The situation escalated when the SEC revisited Kraken for a second enforcement action, prompting Jesse Powell, the platform’s founder and ex-CEO, to express his concerns publicly on social media platforms like Twitter.”
USA's top decel is back with another assault on America. The masochists haven't been happy with the beatings they've been taking in NY and are shopping for a different flavor of RegDom in CA. I thought we settled all their concerns for $30m in Feb. Now they're back for seconds? https://t.co/SkfPJyneUz
— Jesse Powell (@jespow) November 21, 2023
In a pivotal development, the US government intensified its oversight on cryptocurrencies in 2023. A critical incident was the issuance of a Wells Notice to Paxos in February, instructing the New York-headquartered firm to cease the production of the Binance USD (BUSD) stablecoin.
Further accentuating the government’s stance, the “Economic Report of the President” under the Biden Administration presented a skeptical view of cryptocurrencies. The report criticized digital currencies as lacking in practical utility and underscored the widespread fraudulent activities within the industry.
The closure of three banks known for their crypto-friendly approaches – Silvergate, Silicon Valley Bank, and Signature Bank – has sparked intense debates in the crypto community. This situation was further fueled by political figures like Senator Elizabeth Warren, who advocated for stringent regulations on cryptocurrencies. Warren’s proposed legislative measures included the controversial idea of prohibiting self-custody in digital assets.
Amidst these tumultuous events, some voices in the crypto sector have raised concerns about a possible deliberate strategy by federal agencies to undermine the cryptocurrency industry, likening it to a modern version of Operation Choke Point. A notable example is former Congressman Barney Frank, a board member of Signature Bank. Frank has publicly suggested that the forced closure of Signature Bank by the New York Department of Financial Services (NYDFS) was part of a broader agenda to convey a strong anti-crypto message.
Despite these assertions, NYDFS has refuted such claims. In a report by Reuters, it was indicated that the Federal Deposit Insurance Corp. (FDIC) had set conditions for potential buyers of Signature Bank, which could affect banking services for crypto clients. Although the FDIC denied imposing restrictions on crypto clients for the new owners, the eventual acquisition did not include such clients.
A significant figure in the current landscape of cryptocurrency regulation is Martin Gruenberg, the acting head of the FDIC. Gruenberg played a key role in the controversial Operation Choke Point, a program that faced legal backlash and congressional hearings for its perceived overreach by the US government. Despite earlier commitments to reform, recent actions by the FDIC have cast doubt on these promises.
The unexpected shutdown of Signature Bank by regulators took its management by surprise, indicating a sudden and decisive move by the authorities. This decision was particularly noteworthy considering the involvement of Barney Frank, a board member at Signature Bank. Frank is notably recognized for his role in shaping the Dodd-Frank Act, a significant piece of banking legislation following the 2008 financial crisis. He commented on the bank’s stability and potential for continued operation, emphasizing its strong loan portfolio and status as a leading lender in New York City for low-income housing under the tax credit program.
“I think that if we’d been allowed to open tomorrow, that we could’ve continued—we have a solid loan book, we’re the biggest lender in New York City under the low-income housing tax credit. I think the bank could’ve been a going concern.”
In an insightful commentary on the 2023 crypto landscape, Barney Frank, former chair of the House Financial Services Committee, shared his thoughts on the recent upheavals in the banking sector, especially related to crypto. Frank, who played a pivotal role following the global financial crisis, expressed his belief that the government’s actions were intended as a deterrent against crypto transactions. He remarked, ‘This was simply a signal to discourage engagement with cryptocurrency.’
Frank highlighted that, in his view, there was no fundamental justification for the seizure of Signature Bank, where he served on the board. He attributed the bank’s closure not to financial instability but to the prevailing anxiety surrounding cryptocurrency. ‘We became the emblematic example, despite our solid financial foundation,’ he noted.
Further, Frank shared his perspective on the broader impact of the FTX collapse in the previous year, suggesting it triggered a widespread panic that continues to affect the financial sector. He argued that neither Silicon Valley Bank (SVB) nor Signature Bank would have faced collapse if not for the FTX-induced turmoil.
The rationale for shutting down Signature Bank, according to Frank, centered on its Signet product, deemed as having systemic implications. He pointed out that the asset portfolio of Signature was considerably more stable compared to that of SVB. Yet, the fallout of this situation is stark: as of this year, the crypto industry has lost three of its major banking partners.
The year 2023 presented a mixed bag for the cryptocurrency sector in the United States. In a notable development, the judicial branch of the US took a stand against federal agencies like the Securities and Exchange Commission (SEC), with allegations of deceptive practices by the agency surfacing. This pushback, however, seemed to only partially mitigate the broader impacts already felt within the industry.
The unfolding events have led to a growing perception that the US government may represent a significant threat to the future of the nation’s crypto industry. The year 2023 witnessed concerted efforts from government bodies targeting this sector, and there are indications that 2024 might follow a similar trajectory.
Amidst this challenging landscape, crypto entrepreneurs and established entities are increasingly looking towards more crypto-friendly jurisdictions. The prospect of finding a more conducive environment for innovation outside the US is gaining traction. This trend is particularly poignant for a nation known as the ‘land of the free,’ highlighting a critical juncture for the American crypto industry.
Source: crypto.news