The big moments in Biden's crypto crackdown
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The United States' largest crypto exchange has released parts of nearly two dozen "pause letters" sent from the FDIC to regulated financial firms, characterizing the letters as further evidence of an administration-wide effort to quell the industry.
Why it matters: The Biden administration has never made an explicit point of objection to the crypto industry, but enough evidence has piled up to suggest the government's been using its powers to stymie one specific new industry without making a clear argument to the public.
Catch up quick: The FDIC inspector general disclosed the existence of the pause letters a year ago, sent to regulated financial firms between March 2022 and May 2023, asking them to "pause, or not expand, planned or ongoing crypto-related activities and provide additional information."
- The perceived campaign to cut crypto firms off from traditional banking services was coined "Operation Chokepoint 2.0" by crypto investor Nic Carter in 2023. In July, presidential candidate Donald Trump name-checked the idea during an appearance at Bitcoin 2024 in Nashville.
The latest: In response to Freedom of Information Act (FOIA) requests orchestrated by Coinbase related to the pause letters, the FDIC responded with the descriptions of 23 different communications entered into evidence
last week in a case over the records.
- While the names of the banks are not shown and the content is only described, the letters overwhelmingly concern banks seeking to offer some kind of crypto-asset service and being told by the FDIC to hold off while further review is conducted.
- An example of such a service might be, simply, allowing customers to buy and hold bitcoin within their accounts, which was a big topic in 2021.
Zoom in: There's been other evidence supporting the idea of a concerted campaign to forestall the industry along the way.
- Most recently, in the bankruptcy proceedings for Silvergate Bank, an executive testified that the bank shut down because regulators didn't offer it a path forward. The bank did, in fact, have sufficient assets on hand to meet its depository requirements.
- Which squares with what Signature Bank board member and former House leader Rep. Barney Frank, has claimed about that bank's closure — that it was a political hit on an otherwise sound firm.
This year, the Fed has taken action against United Texas Bank and Customers Bank for providing services to firms in the cryptocurrency business — each for anti-money laundering deficiencies.
The big picture: All these actions follow a joint statement from Federal bank regulators in 2023 about the risks of mixing banking and crypto services.
Friction point: For New York's Paxos Trust, a white-label issuer of stablecoins, one of its most successful lines of business had been running a stablecoin (BUSD) with $12 billion in assets under management for the world's largest cryptocurrency exchange, Binance.
- It promptly shut that business line down, however, amid contemporaneous actions by the New York Department of Financial Services and the SEC.
- (However, this year, a Federal court dismissed a charge that the stablecoin violated regulations).
In a first of its kind action, the U.S. Treasury sanctioned a decentralized application, Tornado Cash, in 2022.
- And the SEC has brought or threatened legal action against the most successful U.S. firms in the space, including its two leading exchanges, the developer of the top decentralized exchange, a marketplace for digital property, a market maker and a game maker.
What's next: The FDIC, per the inspector general's notice last year, had committed to update and clarify the feedback process related to its review of supervised institutions' crypto-related activities by January 30, 2024.
What we're watching: The policy approach of the next president.
