US authorities appear to be resurrecting techniques from the past to crack down on cryptocurrency firms and banks that offer services to the industry, multiple sources told Cointelegraph.
The alleged strategy consists of isolating the traditional financial system from the cryptocurrency market through “multiple agencies to discourage banks from dealing with cryptocurrency companies”, with the aim of driving cryptocurrency companies to be “completely non-bank according to Nic Carter, co-founder of venture capital firm Castle Island and cryptocurrency intelligence firm Coin Metrics.
The claims are based on conversations he had with bank executives, including crypto native and traditional banks, Carter told Cointelegraph. “They tell me they are facing immense pressure from the Fed [Reserva Federal] and the FDIC [Corporación Federal de Seguros de Depósitos]. The founders are telling me they can’t get bank accounts anywhere for new startups.” According to Carter:
“Regulators threaten and intimidate bank leaders behind the scenes, then release public ‘guidelines’ stressing that banks remain free to hold cryptocurrency or provide services to crypto clients. In reality, they are not free to do so. not even close.”
Other recent regulatory events include a joint statement released on Jan. 3 by the Fed, FDIC, and the Office of the Comptroller of the Currency (OCC) warning of the risks of banks participating in the crypto industry, and encouraging them to refrain from doing so. due to “safety and soundness” concerns. Also last month, Binance announced that it would only process transactions over $100,000 due to a new Bank of Signatures policy.
In December 2022, Signature Bank announced plans to scale back cryptocurrency services, return funds to customers, and close their accounts. The bank reportedly borrowed nearly $10 billion from the US Federal System of Mortgage Loan Banks in the last quarter of 2022 due to liquidity problems related to the bear market and the collapse of FTX.
“There is a particular concern with crypto exchanges and related intermediaries that operate outside of the United States because their choice of jurisdiction is typically focused on maximizing profit, often to the detriment of the customer,” said Aaron Kaplan, CEO of blockchain fintech Prometheum and attorney at the law firm Gusrae Kaplan Nusbaum, told Cointelegraph. He explained:
“Banks are reassessing whether continuing to provide these services is worth the risk.”
Another priority for US regulators would be to ban cryptocurrency staking services for retail clients, Coinbase CEO Brian Armstrong commented on Twitter. Staking is a process that allows investors to lock crypto assets into a smart contract in exchange for rewards and passive income.
1/ We’re hearing rumors that the SEC would like to get rid of crypto staking in the US for retail customers. I hope that’s not the case as I believe it would be a terrible path for the US if that was allowed to happen.
—Brian Armstrong (@brian_armstrong) February 8, 2023
The techniques of the US authorities are not new. In 2013, a federal government regulatory initiative called Operation Choke Point targeted a number of “high-risk” industries, intensifying supervision of financial institutions that serve these businesses.
Repercussions on cryptocurrency companies
Consequences for the crypto industry could range from reduced ability for retail holders to exchange coins for dollars, as well as the shutdown of exchanges in the US market and a lack of access to financial innovation, Carter said. He believes that the move would take the crypto industry back to the old days:
“It’s going back to the ‘bad old days’ of 2014-2016, when raising funds on exchanges was insanely difficult. There’s nothing positive about this.”
Kaplan believes that “the crypto-financial services ecosystem is evolving to conform to established regulatory frameworks,” which means that companies in the sector will have to “embrace regulation or perish.”
On the contrary, Carter predicts that the initiatives will be unproductive for the sector and retail investors, as they will give more power to “secret banks” and further delay their development in the country. “They seem to think they can cut off cryptocurrency users’ access to the ‘next FTX’ by harassing banks. That’s not true – because blockchain and stablecoin networks already exist. They’re naive. The real goal is to slow the growth of cryptocurrency.” cryptocurrencies whatever”.
The Federal Reserve and the Office of the Comptroller of the Currency did not immediately respond to Cointelegraph’s request for comment.
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