Operation Choke Point 2.0: The Third Crypto War?
Because of the increased regulations and uncertainty, several industry analysts have dubbed the crypto crackdown “Operation Choke Point 2.0.” Is a third crypto war brewing?
The Second Crypto War hasn’t even ended yet, but one has to question if the Third Crypto War has already begun.
As the United States attempts to strike a balance between innovation and consumer protection, the regulatory landscape surrounding cryptocurrencies has gotten increasingly complicated. Unfortunately, it is also becoming more unfriendly to the Bitcoin industry.
The regulatory onslaught, known as Operation Choke Point 2.0, poses significant obstacles to the industry’s viability in the United States.
This article will provide useful insight into the future opportunities and potential hurdles for the crypto industry in the United States by doing a complete examination of the present state of crypto legislation and its implications for enterprises working in this sector.
Accusations and Challenges
The crypto business in the United States has recently experienced a number of challenges:
Several lawsuits have been filed.
Applications were denied.
a general dislike for the industry
For example, despite meeting all of the requirements and investing $80 million in regulatory capital, Protego Trust, a digital asset corporation, was refused a national trust charter by the OCC. This denial has had a tremendous impact on the company, forcing it to lay off the majority of its employees and leaving its future unknown.
Operation Choke Point 2.0
The crypto industry has accused federal bank regulators of purposely limiting digital asset startups’ access to the banking system. This treatment has been nicknamed “Operation Choke Point 2.0” by Nic Carter, a reference to a previous controversial project that targeted specific industries like as guns dealers and payday lenders, which were thought to be at high risk for fraud and money laundering.
In a blog post, Carter said that regulators are exploring deploying choke points to oversee the cryptocurrency business and prevent collapses like the recent FTX catastrophe. Regulators hope to marginalize the industry and avoid direct regulation by restricting access to fiat cash. This crackdown is taking place publicly, through rulemaking and written guidelines, rather than behind closed doors, as in the past. The current method is touted as “safety.”and soundness,” and regulators are discouraging banks from dealing with cryptocurrency.
SEC Crackdown on Crypto Companies
Since October 2020, the Securities and Exchange Commission (SEC) has increased its emphasis on the crypto business, prosecuting and warning digital asset companies practically weekly. This extreme scrutiny has thrown the industry into disarray, with many companies unable to meet heightened regulatory expectations that have, in some cases, considerably hampered their operations. Despite SEC Chairman Gary Gensler’s claim that clear industry norms currently exist, companies like Coinbase disagree. Coinbase has responded to the SEC’s actions by filing its own lawsuit.
Regulatory Counter Arguments
The regulatory authorities in the United States have responded to the allegations made by the cryptocurrency industry, emphasizing that their efforts are intended to balance risk management and consumer protection rather than intentionally targeting crypto enterprises. Regulatory authorities like as the SEC, OCC, and CFTC have responded to the crypto sector’s charges, claiming that they are focused on managing risks associated with cryptocurrencies rather than particularly targeting the business.
The charges, according to Adrienne Harris, superintendent of the New York Department of Financial Services (NYDFS), are “ludicrous.” She denied that the department was attempting to eradicate crypto firms in the United States.
The closure of Signature Bank, according to the NYDFS, was mostly due to poor management and a lack of knowledge of the dangers associated with supporting crypto firms, rather than being part of a secret strategy aimed at destroying the industry.
The Role of Larger Banks
Despite the continuous hurdles and regulatory scrutiny that the cryptocurrency industry is facing in the United States, there are signs that major institutions are beginning to alter their attitude on digital assets.
JPMorgan Chase, one of the major banks in the United States, has just started providing financial services to well-known cryptocurrency exchanges like Coinbase and Gemini. Another major financial institution, Citi, has showed interest in providing services to bitcoin businesses and has been aggressively investigating the potential of digital assets within the traditional financial environment.
These choices by top-tier banking institutions point to a possible shift in attitude and increased acceptance of cryptocurrencies in the banking sector.
This could indicate greater support for the cryptocurrency industry among the normally conservative banking sector. This will lead to further expansion and integration of the banking and cryptocurrency sectors. It might also pave the way for increased dialogue and collaboration with regulatory authorities to help build more inclusive and supportive policies for crypto firms in the United States.
The Effects on Crypto Companies
The United States’ unpredictable regulatory landscape has had a profound influence on bitcoin companies operating within its borders.
Coinbase is apparently considering an overseas expansion to alleviate regulatory worries and roadblocks in the United States. This move emphasizes the growing pressure on US-based crypto companies dealing with a developing and complex regulatory environment.
Other cryptocurrency companies in the United States are still dealing with a variety of issues as they negotiate the ever-changing regulatory framework. The federal bank authorities’ crackdown on cryptocurrency exchanges may drive additional exchanges and their customers to offshore banks in Puerto Rico, Bermuda, and the Bahamas, exacerbating risks and causing harm to the financial system.
Companies that choose to remain in the United States, on the other hand, may face difficulties.
Significant obstacles in their operations, such as restrictions on access to critical banking services or being compelled to comply with a continuously shifting regime of laws and guidelines. The founder and CEO of crypto banking startup BCB Group, Oliver von Landsberg-Sadie, described the situation as “the SEC’s chemotherapy for a giant gap, for a $14 billion Ponzi cancer.”
Because of this evolving terrain, the future of the US cryptocurrency business remains unknown.
Congressional Hearings and Legal Actions
The US Congress and judiciary are becoming more involved in the debate over bitcoin rules. A recent Congressional hearing includes comments from SEC Chairman Gary Gensler, which pleased crypto supporters.
Several cryptocurrency CEOs have been summoned to other hearings, where they have expressed their thoughts on the industry’s issues and prospects.
On the legal front, Protego, a cryptocurrency company, has sued the Federal Reserve, citing irregularities and unfair treatment in the bank charter application process. This legal action, along with Coinbase’s lawsuit against the SEC, indicates greater discontent among crypto enterprises, as well as a willingness and ability to fight back.
The legislative and judicial branches in the United States are increasingly focused on regulatory concerns pertaining to the cryptocurrency business, which may result in changes to the regulatory landscape in the form of new laws.
The Future of Crypto in the US a Third Crypto War?
Is it appropriate to refer to this as the “Third Crypto War?” Depending on who you ask. For example, Rob Leshner, founder of Compound Labs, acknowledged the coordinated effort while lamenting the industry’s lack of mainstream legal infrastructure to interface with the banking system. “The map was wiped clean in an incredibly short amount of time due to unexpected government action,” he explained.There is a movement to de-bank cryptocurrency, and it has been tremendously effective.”
Mike Novogratz echoed this sentiment. Galaxy Digital’s CEO predicts a “widespread crackdown” on the industry. At the same time, he remains optimistic that the “system of checks and balances” in the shape of the judiciary will rein in possible regulatory overreach.
However, not everyone in the United States is pessimistic about cryptocurrency. The Crypto Oracle Collective’s Lou Kerner called the regulatory action “blatantly illegal” but also “irrelevant in the long run.” While this may drive crypto overseas in the medium term, he remains optimistic that “the United States will get its crypto act together.” He urged the industry to #BUIDL, a rallying cry for focusing on innovative products and services rather than getting mired down in political squabbles.
Finally, whether the sector can reach an agreement with politicians may be determined by the industry itself. There is clearly much to be argued for a crackdown on crypto firms, particularly ones that have allegedly followed the rules, such as Coinbase. the other hand,
Even crypto enthusiasts cannot argue that the consequences from the bankruptcy of FTX and other large funds in 2022 did not spill over into other industries.
This implies that the current linkages between cryptocurrency and the regular banking system were already frail, and authorities are attempting to isolate cryptocurrency entirely. While this may not be to the liking of cryptocurrency companies, it is understandable given the ongoing banking crisis.
While this is not yet a full-fledged “Third Crypto War,” it appears to be a “Cold War” between US regulators and the business.
Consider the first crypto war, which took place in the early days of the internet and pitted privacy activists against government agencies.
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