Illustration: Lindsey Bailey/Axios
To regulate pirates, cut off access to their ports and see how long they last at sea. This is the playbook used in the US to rid the scourge of crypto too, it seems .
Why is this important: For crypto, banks are its ports – vital on- and off-ramps for dollars to move on-chain. But banks can’t hold crypto as principal, the Fed’s Board of Governors said in a statement. newsletter entered into force last week.
The big picture“The Fed is saying, we don’t want an express connection between the US banking system and [the] cryptoeconomics,” Steven Kelly, senior research associate at the Yale Financial Stability Program, told Axios.
- “For me to send dollars to anyone, even in bitcoin, my bank is involved,” Kelly says, so discouraging banks from doing crypto business would definitely be a “choke point.”
- Kelly resisted characterizing the Fed’s latest action — long wary of crypto — as a “crackdown,” instead likening it to “plugging a hole” in advice previously provided.
What others say: For Castle Island Ventures’ Nic Carter, however, this advice, along with a host of other actions taken by federal authorities in recent times, is evidence of what he sees as a coordinated attack on crypto that he has nicknamed “Operation Chokepoint 2.0.”
- The name nods to a controversy Obama administration-era strategy which discouraged banks from offering services to “risky” businesses like payday lenders and gun dealers – an effort aimed at uncovering fraud and bad actors.
State of play: The Securities and Exchange Commission recently filed complaints against crypto firms and seems to want more.
- Meanwhile, the ripple effects of a colder position from the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and even the White House, are beginning to appear.
Details: Crypto-server institutions like Signature Bank said it will evolve of digital assets. One of its main clients, the crypto exchange Binance, interrupted fiduciary withdrawals last week while looking for a new banking partner.
- depositary bank application as access to the Fed rails has been denied after months of waiting, and others are thinking back to pursuing theirs.
To note: It started a spin in the rumor mill: The OCC reportedly asked others – including Paxos and Protego Trust which operated on conditional charters – to withdraw their pending applications.
- “With respect to Paxos and Protego, please note that the OCC does not comment on pending applications,” an OCC spokesperson said in an email response to Axios last week.
Catch up fast: Paxos, the white-label stablecoin issuer behind Binance’s BUSD, was ordered today to stop minting them. Paxos did not address an earlier report that the company was served a Wells notice from the SEC regarding a possible breach of a securities offering.
The bottom line: There is no express ban on crypto, but there need not be one.