America's War on Crypto

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The crypto industry recently held a Consensus 2023 industry event in Austin, Texas. It was a 3 day event featuring numerous panels/sessions with speakers/representatives from both crypto and non-crypto companies/industries as well as representatives from various government regulators.

The event covered many topics including:
Crypto isn't just the wild west purview of money launderers and dark web ne'er do wells. There is serious financial/corporate activity happening in the crypto world now.

Valid Criticisms or Propaganda?​


Anti-crypto voices have tried to vilify the crypto industry on environmental concerns - claiming that crypto consumes too much energy. However, like most nascent technologies, they evolve with innovation when there is sufficient interest.

Bitcoin (BTC) was the first crypto coin and it was built on a "proof of work" model. This model is energy intensive by design and it also didn't scale well for handling a large volume of transactions. So, "proof of stake" crypto were developed that were orders of magnitude more efficient and scalable. Ethereum (ETH) transitioned from a proof of work model to a proof of stake model for this reason - and it's still not done being developed. Stellar (XLM) was developed on another "proof of agreement" model that claims to be several more orders of magnitude more efficient than proof of stake models - and even more energy efficient than traditional finance like credit cards:

cryptocost.png



The efficiency of proof of work and proof of stake based cryptos are still being improved in many cases by the development of new technologies like parallel blockchains (aka parachains, cross chains, etc.) that distribute transaction loads and zero knowledge proofs (which could be very significant for Bitcoin in particular).

In addition to the developers of various crypto projects being sensitive to the energy costs from a design standpoint, the decentralized network of node operators (and bitcoin miners) that implement the crypto protocols (than operate the computer servers on the network) are also increasingly using more green energy sources:

... There has also been a shift toward using more renewable energy sources to power cryptocurrency mining. One 2020 study found that around 39% of the energy consumed by PoW cryptocurrencies is from renewable energy sources, up from 28% reported in a previous study. This percentage is likely to rise as renewables become more affordable in the future.
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Crypto Threatened by Government Hostility​


The Biden administration has been very open about their hostility to the crypto industry:
January 30 said:
It’s a safe bet that 80-year-old President Biden—like his 76-year-old predecessor—has never bought Bitcoin, used a stablecoin, or tried out Web3. But that didn’t stop Biden’s underlings at the White House from issuing a blog post on Friday, decrying crypto as predatory and dangerous. The document reads like a diatribe and even has a whiff of moral panic—as if Biden had instructed the makers of Reefer Madness to turn their attention to digital currency.
...


Mar 22 said:
The White House Council of Economic Advisers delivered a 35-page takedown of the idea that digital assets like Bitcoin are useful as an alternative to government-backed currency, the claim that crypto’s underlying distributed ledger technology could have some utopian application, and the notion that it could serve as a hedge against inflation.

“Although the underlying technologies are a clever solution for the problem of how to execute transactions without a trusted authority, crypto assets currently do not offer widespread economic benefits,” the council writes. “They are largely speculative investment vehicles and are not an effective alternative to fiat currency. Also, they are too risky at present to function as payment instruments or to expand financial inclusion.”

The extended crypto criticism, which fills one chapter in a book-length annual report the White House sends to Congress each year, represents a stark change in tone from President Joe Biden’s administration.

One year ago, Biden signed an executive order asking federal agencies to look at ways of curtailing the risks of crypto without stifling “financial innovation.” This week’s report makes clear the White House thinks crypto can’t innovate much besides the same kinds of financial disasters that prompted Congress to regulate the banking industry a century ago.
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Crypto faces similar hostility within the legislative branch from a group of Senators led by Elizabeth Warren.

...
Now, influential Democrat senator Elizabeth Warren has signaled she's "building an anti-crypto army" as part of her re-election campaign following a warning from crypto lobby group Coin Center that a crackdown on TikTok could pave the way for a bitcoin ban.

"I’m in this fight to put our government on the side of working families," the former U.S. presidential hopeful posted to Twitter, embracing a quote from a recent Politico profile that said she's "building an anti-crypto army."

Warren, who is on the Senate Banking Committee that oversees the U.S. Securities and Exchange Commission (SEC), has been at the vanguard of a slew of anti-bitcoin and crypto bills that have been introduced over the last year.
...


Three Pronged Attack​


The American government is currently employing a three pronged attack on the crypto industry in an attempt to suffocate it.

Prong number one makes headlines in most news media and involves the SEC purposefully maintaining vague guidance and attacking companies with lawsuits. Their behavior has been so egregious that it has drawn dissent from their own ranks and from Congress. The SEC has apparently been tasked to be the Biden administration's Shawshank warden Samuel Norton in obtusely responding to the crypto industry. There really isn't any other way to explain SEC chair Gensler's blatant hypocrisy.

Prong number two has flown under the radar of most news media and involves the revival of Operation Choke Point - an Obama era program that aimed to de-bank lawful industries that the administration disfavored. The operation was shut down circa 2017, but is now making a comeback targeting the crypto industry. Cooper & Kirk, a law firm that sued FDIC, OCC & Fed over the original Operation Choke Point, published a detailed summary of Operation Choke Point 2.0.

Former Congressman Barney Frank, a board member of Signature Bank, alleged that the bank was solvent and seized by regulators to debank it's crypto clients. The move sparked contagion in the regional banking industry and prompted some members of Congress to question the FDIC's actions. When the FDIC solicited bids for Signature bank, they split off Signature's crypto clients effectively de-banking them.

The third prong involves legislation and executive orders designed to handcuff the crypto industry including increasing taxes on bitcoin miners and regulations.

Stablecoins - Kind of a Big Deal​


Stablecoins, such as US Dollar Coin (USDC) and Tether (USDT), are cryptocurrencies that are backed by national currencies. They are essentially tokenized forms of the underlying legal tender they represent. Unfortunately for the Federal reserve, US Treasury Dept., etc., they enable transactions that do not process through the US banking system. As such, they have drawn particular interest from the Biden administration.

Stablecoins provide an open door for global entities to conduct dollar denominated transactions that could bypass US sanctions. They provide an opportunity for people in nations with high inflation to save money in dollar denominated currency that bypasses official dollar exchanges (or prohibitions). The adoption and growth of stablecoins would appear to be a direct threat to any possible plans for a Central Bank Digital Currency (CBDC).

Futile and Stupid Gesture​


The Biden administration's effort are provoking a chilling effect of the domestic crypto industry and forcing much of America's leadership in innovation and development to expatriate to friendlier shores. What the Biden administration does not appear to realize is that crypto is global. They are not going to be able to choke the global industry with an iron fist. Pandora's box has been opened. The crypto industries will continue to innovate and grow with new financial and commercial applications. It will be a true shame if America abdicates their position in leading the charge.
 
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U.S. Senator Cynthia Lummis (R-WY) sent a letter to Federal Deposit Insurance Corporation (FDIC) Chair Marty Gruenberg after her office was contacted by whistleblowers alleging the FDIC was destroying materials with respect to the digital asset activities of the agency and threatening retaliation against staff for speaking out. The letter demands Chair Gruenberg and his staff immediately cease and desist from these actions in preparation for Congressional oversight in the coming months.

“The FDIC’s alleged efforts to destroy and conceal materials from the U.S. Senate related to Operation Chokepoint 2.0 is not only unacceptable, it is illegal,” said Lummis. “If it is uncovered that anyone within the FDIC has knowingly destroyed materials or sought to obstruct the oversight functions of the Senate, it will result in swift criminal referrals to the U.S. Department of Justice. The American people deserve transparency, and I will see to it that they get the answers they deserve.”


The letter:
 
Bold emphasis is mine:
On January 20, 2025, Travis Hill became Acting Chairman of the Federal Deposit Insurance Corporation (FDIC). Acting Chairman Hill issued the following statement:

“It is my honor and privilege to serve as Acting Chairman of the FDIC. While the FDIC faces a broad range of issues, and as always will fulfill our mandate to promote a safe, sound, and resilient banking system, below is a list of matters I expect the FDIC to focus on in the coming weeks and months.”
  • Conduct a wholesale review of regulations, guidance, and manuals to ensure our rules and approach promote a vibrant, growing economy.
  • Adopt a more open-minded approach to innovation and technology adoption, including (1) a more transparent approach to fintech partnerships and to digital assets and tokenization, and (2) engagement to address growing technology costs for community banks.
  • Improve the bank merger approval process and replace the 2024 Statement of Policy to ensure that merger transactions that satisfy the Bank Merger Act are approved in a timely way.
  • Withdraw problematic proposals from the past three years, such as proposals on brokered deposits and corporate governance.
  • Improve the supervisory process to focus more on core financial risks and less on process, and reevaluate the supervisory appeals process.
  • Enhance our readiness and preparedness for resolving large financial institutions, incorporating lessons from the far-too-costly failures of 2023, including the need to be much more proactive and nimble and to improve the bidding process.
  • Pursue adjustments to our capital and liquidity rules to appropriately balance driving economic growth with ensuring safety and soundness and resilience to shocks.
  • Encourage more de novo activity so there is a healthy pipeline of new entrants in the banking sector.
  • Work to ensure law-abiding customers have, and do not lose, access to bank accounts and banking services.
  • Modernize implementation of the Bank Secrecy Act.
  • Study deposit behavior to develop a more sophisticated understanding of the relative stability of different types of deposits and depositors.
  • Reevaluate our disclosure practices, and expand transparency in areas that do not impact safety and soundness or financial stability.
  • Ensure the FDIC remains within our statutory mandates, and stops coloring outside the lines.
  • Pursue internal efficiencies to ensure we are serving as responsible stewards of the Deposit Insurance Fund.
  • Reestablish a strong workforce culture, where misconduct is not tolerated and those who engage in misconduct are held accountable.


Operation Chokepoint 2.0 is over.
 
Today SEC Acting Chairman Mark T. Uyeda launched a crypto task force dedicated to developing a comprehensive and clear regulatory framework for crypto assets. Commissioner Hester Peirce will lead the task force. Richard Gabbert, Senior Advisor to the Acting Chairman, and Taylor Asher, Senior Policy Advisor to the Acting Chairman, will serve as the task force’s Chief of Staff and Chief Policy Advisor, respectively.

Drawing from talented staff across the agency, the Task Force will collaborate with Commission staff and the public to set the SEC on a sensible regulatory path that respects the bounds of the law. To date, the SEC has relied primarily on enforcement actions to regulate crypto retroactively and reactively, often adopting novel and untested legal interpretations along the way. Clarity regarding who must register, and practical solutions for those seeking to register, have been elusive. The result has been confusion about what is legal, which creates an environment hostile to innovation and conducive to fraud. The SEC can do better.

The Task Force’s focus will be to help the Commission draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously.

The Task Force will operate within the statutory framework provided by Congress and will coordinate the provision of technical assistance to Congress as it makes changes to that framework. The Task Force will coordinate with federal departments and agencies, including the Commodity Futures Trading Commission, and state and international counterparts.

“I look forward to the efforts of Commissioner Peirce to lead regulatory policy on crypto, which involves multiple SEC divisions and offices,” said Acting Chairman Uyeda.

“This undertaking will take time, patience, and much hard work. It will succeed only if the Task Force has input from a wide range of investors, industry participants, academics, and other interested parties. We look forward to working hand-in-hand with the public to foster a regulatory environment that protects investors, facilitates capital formation, fosters market integrity, and supports innovation,” stated Commissioner Peirce.
...


This is good news. Uyeda and Pierce have been reasonable and fair actors on the SEC board that were outnumbered by Gensler and puppets. Now they are in a position to set policy.
 
Blockchain Association said:
Today we, along with some of the most important crypto companies and investors, received a letter from @GOPoversight asking for information on the recent debanking of lawful companies and individuals.

We’re grateful for @RepJamesComer’s leadership on this critical issue.

🧵
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Back in March ‘23 we filed FOIA and FOIL requests to further investigate communications between regulators and banks to determine if there was direct instruction to restrict access to crypto companies.

We’re still waiting on responses. <i></i>
6/ We also launched an anonymous tipline for those impacted by debanking…

debanked@theblockchainassociation.org

…to gather stories and information. <i></i>
7/ Following our investigation, a clear pattern emerged: legal businesses and individuals were systematically denied access to banking, often with little to no explanation.

Understandably, those impacted felt compelled to stay silent – or only share their stories confidentially. <i></i>
8/ But the tide is turning and there is new leadership in DC that is committed to ending this unlawful, discriminatory practice.

And we remain committed to listening to industry, companies, and individuals who have experienced this first hand – and amplifying their stories. <i></i>
9/ This saga shows why many are drawn to crypto in the first place. We want to live in a world where everyone controls their own financial destiny, free from undue political interference.

Individuals in a lawful industry shouldn’t be punished because of overzealous regulators. <i></i>
...

More:
 
Bold emphasis is mine:
Today, the Federal Deposit Insurance Corporation (FDIC) released 175 documents related to its supervision of banks that engaged in, or sought to engage in, crypto-related activities.

Acting Chairman Travis Hill issued the following statement in connection with the release:

“I have been critical in the past of the FDIC’s approach to crypto assets and blockchain. As I said last March, the FDIC’s approach ‘has contributed to a general perception that the agency was closed for business if institutions are interested in anything related to blockchain or distributed ledger technology.’

“Upon becoming Acting Chairman, I directed staff to conduct a comprehensive review of all supervisory communications with banks that sought to offer crypto-related products or services. While this review remains underway, we are releasing a large batch of documents today, in advance of a court-ordered deadline of Friday. Our decision to release these documents reflects a commitment to enhance transparency, beyond what is required by the Freedom of Information Act (FOIA), while also attempting to fulfill the spirit of the FOIA request.

“Previously, the FDIC released 25 so-called ‘pause’ letters sent to 24 institutions interested in pursuing crypto- or blockchain-related activities. The documents released today include (1) additional correspondence with those 24 institutions and (2) correspondence with additional institutions beyond those 24. The documents that we are releasing today show that requests from these banks were almost universally met with resistance, ranging from repeated requests for further information, to multi-month periods of silence as institutions waited for responses, to directives from supervisors to pause, suspend, or refrain from expanding all crypto- or blockchain-related activity. Both individually and collectively, these and other actions sent the message to banks that it would be extraordinarily difficult—if not impossible—to move forward. As a result, the vast majority of banks simply stopped trying.

“Looking forward, we are actively reevaluating our supervisory approach to crypto-related activities. This includes replacing Financial Institution Letter (FIL) 16-2022 and providing a pathway for institutions to engage in crypto- and blockchain-related activities while still adhering to safety and soundness principles. The FDIC also looks forward to engaging with the President’s Working Group on Digital Asset Markets established by the President’s January 23, 2025 Executive Order.”
...


Coinbase's lawyer is tweeting some insights from what he's finding in the new documents (see the many replies to the embedded tweet):

 
In case you missed it, Judge Bibas of the U.S. Court of Appeals for the Third Circuit recently encapsulated the reason for my industry’s fury against the Gensler-led SEC in three concise sentences. The opening paragraphs of Coinbase Inc. v. Securities and Exchange Commission, No. 23-3202 (3d Cir. Jan 13, 2025), frame the issue in the case:

“Coinbase … petitioned the Securities and Exchange Commission (SEC) to promulgate rules clarifying how and when the federal securities laws apply to digital assets like cryptocurrencies and tokens. Coinbase argued in its petition that the existing securities-law framework does not account for certain unique attributes of digital assets, which make compliance economically and even technically infeasible…. [¶] The SEC denied Coinbase’s rulemaking petition. In a single paragraph, it explained that it disagreed with the petition’s concerns; that it had higher-priority agenda items—namely, everything else it was doing….”

The Court held that the SEC’s terse response was not sufficiently reasoned and, thus, was arbitrary and capricious. That holding is not at all surprising.

More significant is Judge Bibas’ concurring opinion in which he outlines “a constitutional issue that … lurks beneath” this holding. In Judge Bibas view, the SEC’s “haphazard enforcement strategy” targeting “entities that are trying to follow the law” (his words, not mine) raises due process concerns, which he summarized as follows:

“The SEC repeatedly [sued] crypto companies for not complying with the law, yet it [did] not tell them how to comply. That caginess creates a serious constitutional problem; due process guarantees fair notice. “[R]egulated parties should know what is required of them so they may act accordingly ….”



Judge Bibas’ concurring opinion in Coinbase v. SEC, No. 23-3202 (3d Cir. 2025), is also notable for his assessment of Gensler’s actual motive—a de facto ban on crypto. In line with the industry view, he wrote that "the SEC has sidestepped the rulemaking process by pursuing a de facto ban through enforcement instead,” and then mused, “One might wonder if an agency whose mission is maintaining fair, orderly, and efficient markets is authorized to ban an emerging technology.” Good question.

The Court did not address that issue, as it was not properly before it. But I’ll share my view: It is not the prerogative of a small group of regulators to snuff out an entire industry, especially not one that aims to redesign the global financial system, the Internet, and money in a way that provides greater choice, independence, and opportunity for all. That would be an exercise of far too much power by an unaccountable few.

In short, Gensler set a very dangerous precedent with his ill-conceived campaign to kill crypto in the U.S.

 

What to know:​

  • Crypto representatives told lawmakers it's time to move on legislation to establish U.S. regulatory clarity for the industry during a congressional hearing.
  • Democrats seized the chance to take shots at President Donald Trump's personal forays into crypto.
 
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